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RBI falls short of meeting Basel III requirements: Report

RBI falls short of meeting Basel III requirements: Report

The Reserve Bank of India has fallen short of meeting tougher requirements set by the Basel III norms, according to a report by the Basel Committee on Bank Supervision (BCBS).

The semi-annual report brought out by the BCBS, a committee under the Bank For International Settlements, looked at adoption status of Basel III standards by 30 global systemically important banks (G-Sibs) as of end-May 2019.

This committee of banking supervisory authorities aims to enhance understanding of key supervisory issues and also improve the quality of banking supervision worldwide.

Highlights of the Report

The committee reports that India’s central bank is yet to publish the securitisation framework and rules on total loss-absorbing capacity (TLAC) requirements. Globally, the norms on securitisation exposures held in the banking book had come into effect on 1 January, 2018.

The RBI also missed the deadline for meeting the TLAC requirement, which ensures that G-Sibs have adequate loss absorbing and recapitalisation capacity so that critical functions can be continued without taxpayers’ funds or financial stability being put at risk. These include instruments that can be either written down or converted into equity, like capital instruments and long-term unsecured debt. The TLAC constitutes 16% to 20% of a group's consolidated risk-weighted assets.

India’s G-sibs include State Bank of India, ICICI Bank and HDFC Bank

Basel Norms

Basel is a city in Switzerland which is also the headquarters of Bureau of International Settlement (BIS). BIS fosters co-operation among central banks with a common goal of financial stability and common standards of banking regulations. Currently there are 27 member nations in the committee.

Basel guidelines refer to broad supervisory standards formulated by this group of central banks- called the Basel Committee on Banking Supervision (BCBS). The set of agreement by the BCBS, which mainly focuses on risks to banks and the financial system are called Basel accord.

The purpose of the accord is to ensure that financial institutions have enough capital on account to meet obligations and absorb unexpected losses. India has accepted Basel accords for the banking system.

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