According to a report by the State Bank of India (SBI), the implementation of Basel III norms in the Indian banking sector may be slightly delayed. The report attributed the delay in implementation to the existing stress in the banking industry due to the three structural reforms concerning demonetisation, the Goods and Services Tax (GST) roll out, and Real Estate Regulatory Authority (RERA).
The report titled ‘Timing Future Reforms in India’ stated that the country’s banking sector needs some more time to assimilate the changes resulting from the three structural reforms. Moreover, the report pointed out the importance of focusing on issues related to credit growth, asset quality, and financial inclusion in the upcoming months.
The Indian banking industry is currently facing challenges as credit growth has already declined due to slowdown in the manufacturing sector. For the fiscal year 2016-17, credit growth slowed down to 8.1% compared to 10.9% in the previous year.
The Reserve Bank of India (RBI) has not lowered the repo rate to keep the inflation under check. This has made it difficult for banks to improve credit growth and asset quality. Furthermore, bad loans of public sector banks in the country have already touched $145.56 billion in the first half of 2017. Amidst all these pressures, a breather time is required by the banks before they can meet their capital needs.
Basel III norms are a set of international reforms introduced following the credit crisis of 2009. These reforms aim to improve regulation, increase supervision, and reduce risk in the banking sector across the world. Compared to Basel I and Basel II norms, Basel III norms introduced stringent capital requirements for banks and required banks to maintain proper leverage ratios.
As per the RBI directions, implementation of Basel III norms in India have already started from April 2013 onwards. Full implementation of these norms is expected to be over by March 31, 2013.