The RBI Governor, Dr D. Subbarao, on Wednesday said that Indian banks will have to incur additional costs to build capital buffers to comply with Basel III rules.
Though the Indian banking sector was comfortably placed to implement Basel III regulations, some banks might need additional capital, Dr Subbarao said at a meeting with bankers here. “On aggregate, banks are comfortably placed in terms of capital adequacy, but a few individual banks may fall short due to implementation of Basel III.”
The Basel III rules, formulated by the Basel Committee on Banking Supervision following the financial crisis of 2008-09, require banks to shore up their capital and liquidity buffers, and will be implemented in phases from 2013.
The implementation of Basel III will lead to an increased cost of borrowing for Indian companies both in the domestic and overseas markets, Dr Subbarao said.
Banks should look at trimming the interest rates on advances and hiking those on deposits in order to achieve a double-digit growth. “For double digit growth we need more deposits, and this (more deposits will come in) happen if banks provide attractive interest rates on deposits,” he pointed out.
The demand for credit is set to rise, he added.
Managing liquidity
Dr Subir Gokarn, Deputy Governor, Reserve Bank of India, said that the apex bank would not want to compromise its monetary stance to manage liquidity in the system, thereby hinting that there could be little possibility of a cut in the cash reserve ratio of banks.
“The cash reserve ratio is not just a liquidity tool, but also a monetary signal and the RBI will do “whatever possible” to manage liquidity, but within the confines of its monetary policy,” Dr Gokarn said at the bankers' meeting.
Talking about the rupee volatility, Dr Gokarn said, “The RBI's steps to increase inflows have helped cap the rupee movement.”
The central bank did not have a view on the value of rupee, he said. The RBI has not used large amount of reserves to manage currency depreciation. “Our approach has been non-interventionist,” he added.