The Reserve Bank of India has deferred implementation of capital conservation buffer by a year to March 2016, implying lower capital requirement to the extent of 0.625% (of RWA) from FY15-18 than earlier norms.
The central bank has tweaked loss absorption features of non-equity capital instruments for their inclusion in CET1. Primary change has been revising pre-specified trigger point for write-down mechanism lower to CET1 of 5.5% of RWAs for instruments issued till March 2019 (compared to CET1 of 6.125% earlier). Additionally, it has also removed temporary loss absorption feature for additional Tier-1 capital, which may hinder fund raising via this instrument to some extent/or raise borrowing costs.
Commenting on the same, Edelweiss Research said, "The revised transitional arrangement is likely to come as a relief for banks, especially SOE banks currently reeling under capital constraints namely Union Bank, Canara Bank etc,"
It said, although we believe that it will give them adequate time for capital planning, frequent capital issues are likely be a challenge for PSU banks. Additionally, the revised timelines have made transition more back-ended in nature and appropriate capital planning will be key for implementation.
Disclaimer: IRIS has taken due care and caution in compilation of data for its web site. Information has been obtained by IRIS from sources which it considers reliable. However, IRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. IRIS especially states that it has no financial liability whatsoever to any user on account of the use of information provided on its website.