30 Dec 2011

RBI’s Draft Guidelines On Implementation Of Basel III Capital Regulations In India

The Reserve Bank of India (RBI), through its notification numbered RBI/2011-12/331 DBOD.No.BP.BC. 71/ 21.06.201 / 2011-12, dated 30th December 2011 has issued draft guidelines on implementation of Basel III capital regulations in India.

The Basel Committee on Banking Supervision (BCBS) has issued comprehensive reform packages entitled “Basel III: A global regulatory framework for more resilient banks and banking systems” and “Basel III: International framework for liquidity risk measurement, standard and monitoring” in December 2010, with the objective of improving banking sector resilience by strengthening global capital and liquidity regulations, respectively.  The reform package addresses the lessons of the financial crisis and aims at enhancing banking sector’s ability to absorb shocks arising from financial and economic stress. Further, the BCBS, through the reform package also aims to improve risk management and governance as well as strengthen banks’ transparency and disclosure standards relating to regulatory capital. The reforms also have a macroprudential focus, addressing system-wide risks which can build up across the banking sector as well as the procyclical amplification of these risks over time.

On 1 June 2011, the BCBS announced that it has completed its review of and finalised the Basel III capital treatment for counterparty credit risk in bilateral trades. The review resulted in a minor modification of the credit valuation adjustment, which is the risk of loss caused by changes in the credit spread of a counterparty due to changes in its credit quality (also referred to as the market value of counterparty credit risk). A revised version of the Basel III capital rules reflecting the CVA modification was issued that supplemented the original version was published in December 2010.

RBI, being a member of the BCBS, is fully committed to the objectives of Basel III reform package and therefore, intends to implement these proposals for banks operating in India. Accordingly, guidelines have been drafted based on the Basel III reforms on capital regulation, to the extent applicable to banks operating in India. RBI is currently working on operational aspects of implementation of the Countercyclical Capital Buffer. Guidance to banks on this will be issued in due course. Similarly, guidelines on new global liquidity standards introduced as part of Basel III (Basel III: International framework for liquidity risk measurement, standards and monitoring, December 2010) will be issued separately.

The Basel III framework will be applicable both at the level of consolidated bank as well as at the level of stand-alone bank. Accordingly, overseas operations of a bank through its branches will be covered in both the scenarios.

Banks have been requested to offer their comments / suggestions on the various proposals enumerated therein latest by February 15, 2012 by mail to the Chief General Manager-in-Charge, Reserve Bank of India, Department of Banking Operations and Development, Central Office, 12th floor, Central Office Building, Shahid Bhagat Singh Marg, Mumbai-400001 or through e-mail .