NEW DELHI: Moody’s Investors Service on Tuesday said RBI board’s decision to extend the timeline for banks to implement Basel 3 guidelines is “credit negative” for PSBs. Also, the decision to restructure stressed MSME loans of up to Rs 25 crore also has the potential for having negative implications for the credit profiles of banks, the agency said. “While more details are awaited, this approach has the potential for negative implications for the credit profiles of Indian banks,” Moody’s VP (Financial Institutions Group) Srikanth Vadlamani said.
The RBI board, while deciding to retain the capital adequacy requirement for banks at 9 per cent, agreed to extend the transition period for implementing the last tranche of 0.625 per cent under the capital conservation buffer (CCB), by one year – up to March 31, 2020. CCB currently stands at 1.875 per cent and remaining 0.625 per cent was to be met by March 2019, as per the deadline fixed by the RBI.
“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,” Vadlamani said. It expects that all public sector banks would have a core equity tier 1 (CET1) ratio of atleast 8 per cent by the end of March 2019, based on the government’s commitment that it would capitalise all these banks to a level sufficient to meet the minimum regulatory capital norms.
“With the regulatory timelines now extended, it may be a case that at least some of the rated public sector banks’ CET1 ratios over the next 12 months would be lower than what we currently expect,” he said.On restructuring of stressed MSME loans, Moody’s said the track record of such asset classification, when seen over the last few years in India, has shown that they have “largely been unsuccessful in addressing the underlying stress”.
