Basel III Norms Extended

Reserve Bank of India (RBI), the Apex Bank of the country and regulator of banking industry, has given extension for implementation of Basel III norms. It has extended the implementation date up to 31 March, 2019 from 31 March, 2018. Thus, the banks will get one more year for raising fund and for implementing the said norms.

There are many banks, especially Public Sector Banks (PSBs) as well as Private Sector Banks, which have already taken steps to complete the norms and some banks are planning to raise funds. During FY14, the government of India had already infused Rs. 14000 crore in PSBs and has proposed to infuse Rs. 11200 crore in FY15 to improve Tier I capital of the PSBs. On the other hand, banks have also raised money through Basel III debt bond to improve Tier II capital. Banks like State Bank of India raised Rs. 2000 crore, Union Bank raised Rs 2000 crore, Bank of India raised Rs. 1000 crore, United Bank raised Rs. 500 crore and Yes Bank raised Rs 300. crore, Canara Bank raised Rs. 2500 crore through BASEL-III complaint Tier-II Bonds while State Bank of Travancore, Lakshmi Vilas Bank has proposed to raise capital through right issue. 

Due to tight liquidity, the banks are paying higher rate of interest on the said bond which is increasing the cost of fund for banks. Since RBI has extended the time, it will help the banks on cost front because it is expected that the policy rate may come down in the near future. On the other hand, most of the banks are trading at prices to book value less than 1x. Due to this, they have to issue more number of shares to raise the same amount of capital what they would have issued, had their price quoting above their book value. What this means is that, if banks will raise fund by issuing capital, it will be book value dilutive. 

Therefore, the current extension given by the RBI gives the banks a breather and they can raise funds at much favourable terms going forward. This is the reason, Bank Nifty grew by 1.19%, and the CNX PSU Nifty was up by 4.73% as PSUs will be most benefited by this.