The Reserve Bank of India’s (RBI) decision to extend the deadline for the last tranche of capital conservation buffer by one year is credit negative for banks, rating agency Moody’s said.
“The decision to extend the timeline for the full implementation of Basel 3 guidelines by a year is a credit negative for Indian public sector banks,” aid Srikanth Vadlamani, vice president, Financial Institutions Group, Moody’s Investors Service.
In its board meeting on Monday, the central bank, while deciding to retain the CRAR at 9%, agreed to extend the transition period for implementing the last tranche of 0.625% under the Capital Conservation Buffer (CCB), by one year, that is, up to March 31, 2020.
“With the regulatory timelines now extended, at least some of the rated public sector banks’ CET1 ratios over the next 12 months would be lower than what we currently expect,” Moody’s said. The agency also said the decision of a debt recast scheme for MSMEs has the potential for negative implications for the credit profiles of Indian banks.
Another rating agency, Crisil, said the deadline extension will reduce the burden of public sector banks this fiscal by ₹35,000 crore. “This will provide some breathing space to capital-starved PSBs,” said Krishnan Sitaraman, senior director, Crisil Ratings. “As per our earlier estimates, they needed around ₹1.2 lakh crore up to March 2019 to meet Tier 1 capital stipulated under Basel III norms. Now they would need only around ₹85,000 crore.” Karthik Srinivasan, Group Head-Financial Sector Ratings, ICRA, said the decision to retain capital adequacy ratio of banks at minimum 9% is positive for banks, given high unprovided losses against the existing stressed loans.
“Based on the existing framework, 17 out of 21 PSBs would come under the PCA framework, though only 11 are formally under PCA. With the framework to now be examined by the BFS, one may explore scenarios for a faster exit of banks from PCA framework.”
