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India and Basel Norms

  • Presently indian banking system follows basel II norms.
  • The Reserve Bank of India has extended the timeline for full implementation of the Basel III capital regulations by a year to march 31, 2019. March 31, 2019.
  • Around 10 public sector banks (PSBs) will get a total capital infusion of Rs 12,517 crore from the government before this financial year ends.
  • Government of India is scaling disinvesting their holdings in PSBs to 52 per cent.

The major highlights of the draft guidelines of RBI are

Minimum Capital Requirements
  • Common Equity Tier 1 (CET1) capital must be at least 5.5% of risk-weighted assets (RWAs);
  • Tier 1 capital must be at least 7% of RWAs; and
  • Total capital must be at least 9% of RWAs.
Capital Conservation Buffer
  • The capital conservation buffer in the form of Common Equity of 2.5% of RWAs.
Transitional Arrangements
  • It is proposed that the implementation period of minimum capital requirements and deductions from Common Equity will begin from January 1, 2013 and be fully implemented as on March 31, 2017.
  • Capital conservation buffer requirement is proposed to be implemented between March 31, 2014 and March 31, 2017.
  • The implementation schedule indicated above will be finalized taking into account the feedback received on these guidelines.
  • Instruments which no longer qualify as regulatory capital instruments will be phased-out during the period beginning from January 1, 2013 to March 31, 2022.
Balance Sheet (overview)
A balance sheet is a statement of the total assets and liabilities of an organisation at a particular date - usually the last date of an accounting period.
The balance sheet is split into two parts:
  1. A statement of fixed assets, current assets and the liabilities (sometimes referred to as "Net Assets")
  2. A statement showing how the Net Assets have been financed, for example through share capital and retained profits.
The Companies Act requires the balance sheet to be included in the published financial accounts of all limited companies. In reality, all other organisations that need to prepare accounting information for external users (e.g. charities, clubs, and partnerships) will also product a balance sheet since it is an important statement of the financial affairs of the organisation.
A balance sheet does not necessary "value" a company, since assets and liabilities are shown at "historical cost" and some intangible assets (e.g. brands, quality of management, market leadership) are not included.
Asset: An asset is any right or thing that is owned by a business. Assets include land, buildings, equipment and anything else a business owns that can be given a value in money terms for the purpose of financial reporting.
Liabilities - To acquire its assets, a business may have to obtain money from various sources in addition to its owners (shareholders) or from retained profits. The various amounts of money owed by a business are called its liabilities.
Long-term and Current
To provide additional information to the user, assets and liabilities are usually classified in the balance sheet as:
- Current: those due to be repaid or converted into cash within 12 months of the balance sheet date;
- Long-term: those due to be repaid or converted into cash more than 12 months after the balance sheet date;
Fixed Assets - A further classification other than long-term or current is also used for assets. A "fixed asset" is an asset which is intended to be of a permanent nature and which is used by the business to provide the capability to conduct its trade. Examples of "tangible fixed assets" include plant & machinery, land & buildings and motor vehicles. "Intangible fixed assets" may include goodwill, patents, trademarks and brands - although they may only be included if they have been "acquired". Investments in other companies which are intended to be held for the long-term can also be shown under the fixed asset heading.
Capital - As well as borrowing from banks and other sources, all companies receive finance from their owners. This money is generally available for the life of the business and is normally only repaid when the company is "wound up". To distinguish between the liabilities owed to third parties and to the business owners, the latter is referred to as the "capital" or "equity capital" of the company.
In addition, undistributed profits are re-invested in company assets (such as stocks, equipment and the bank balance). Although these "retained profits" may be available for distribution to shareholders - and may be paid out as dividends as a future date - they are added to the equity capital of the business in arriving at the total "equity shareholders' funds".
At any time, therefore, the capital of a business is equal to the assets (usually cash) received from the shareholders plus any profits made by the company through trading that remain undistributed.

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