Basel 3 requirements for India Banks

India’s banks already satisfy a core Tire I 8% criteria so a move on to a Tier I 9% criteria which RBI proposes would be an easy task and not need INR 1.5 T of cash as ET and some experts have suggested. It also means however that India will again choose to face BIS with “Country specific requirements” to completely do away with complicated RA considerations. Apparently Goldman Sachs agrees that India’s banks do not need much to get to the Basel III requirement too. However in defense of those who cooked up requirements a typical global bank would get charged 1.5-2% of its Asset book when it moves to the new Basel III RWA regime, sometimes even more.

That means that Basel 2 and Basel 2.5 ratios for banks have to be far more than 10% for them to consider being safe for Basel 3 even after inter bank capital is cancelled . That at once identifies the different challenge for global banks who have been surviving on 20-30% components of Capital coming from other bank issues , each scratching the other’s back and that it fortunately is not a systemic problem in India where inter bank exposures are far more limited and measured against specific deals

Bank results season : ICICI Bank begets the vote of confidence, PNB grows NPAs

English: ICICI bank in South Road
Image via Wikipedia

ICICI Bank Deposits are now INR 2.7 Tln and only 101% of advances against the expected 125% or the ideal 130% As a proportion of the $ 95 bln balance sheet they are tracking and only 65% are retail deposits That means the NIMs are overoptimised and s and when ext borrowings are added to leverage the balance sheet it might erode further from 2.7% Based on subsidiary incomes and its NII and other fee income it has been growing well however.

PNB grew Gross NPAs , with Net NPAs rising from 0.84% to 1.12% losing momentum with NII growing 10% and NIMs down a fraction to 3.84%

ICICI Bank however grew NII to INR 27.1 bln and Profits to INR 17 bln in the December Quarter. The profits were 20% higher from December 2010. ICICI Bank NII grew at 17% and Net Npas fell to 0.3% , provisions a further smaller 3.6 bln The compoany’s loan book is now at INR 2.31 tln or $46.3 bln

The bank’s 18 international operations still make 50% of the book and mortgages only 35%. Retail deposits are only 65% of the deposits and the loan book will grow at 18% incl the March quarter for FY2012

September’s Profits were a bigger INR 19.92 bln. September provisions were INR 3.2 bln CAR remains above 18% and 13% (Tier I by Basel 1.5 calc) as per RBI directives for 8% CAR reqts. September NII was INR 25 bln and the current is a 8% QOQ growth

The bank plans to cement its growht with recovery in retail growth and the clampdown on corporate lending effectively continues. CRE is less than 4% of the Company’s loan book. The bank’s $100 bln balance sheet is the second largest int he country behind public sector SBI

ICICI Bank NIMs continue to languish at 2.7% but are likely to improve with focus on retail It has grown free income basis in Transaction banking fees and remittance fee income while M&A fee also languishes in current market. Life insurance premium has grown by a healthy margin again

Reserve Bank rolls out Basel 3 norms

 India agreed to a slightly modified version f the Basel 3 regime requiring banks to hold a minimum 5.5% Tier I common Capital and the common buffer of 2.5% again in 2.5% of RWA as Equity ( Tier I common)

Including statutory and capital reserves that also form Tier I capital the requirement is 7% and that incl Tier II secondary debt capital is 9% All are percentages of Risk Weighted Assets. Banks in India have hardly adopted the Third Pillar Internal rqatings based approach to Risk weighted assets, relying on standard baskets as delineated by RBI to compute regulatory capital. This leaves less scope for 20% RWA and thus the expectation of a lower, almost non exitent tranches of 150%-200% and above in the balance sheet

Banks will get a period of 4 years three months from January 01, 2013 to March 31, 20127 to ensure full implementation of the Basel III regime

The Capital Conservation Buffer of 2.5% will be implemented from FY15 likely even a s the rBI paper requires it from 31 March 2014 i.e. the Balance sheet of FY 2014 may require the buffer

Basel 3 was introduced amidst a global run on bank credit and most verification has been based on stress tests and thus increasing stress on Tier I common in the framework itself Foreign banks orefer Basel II qualified capital such as  Perpetual Non-cumulative Preference Shares (PNCPS), Innovative Perpetual Debt Instruments (IPDI) and capital reserves.

These may be disqualified under Basel 3 and will be phased out over a ten year period from FY13 to FY22

Thankfully one less paper to read as moneylife does a good job of the summary analysis

Bank Results Season: HDFC Bank showcases awesome retail growth

An HDFC Bank Branch in Hyderabad
Image via Wikipedia

With deposits increasing 9% over the June quarter and Savings accounts increasing 6% year n year of the total 18% growth in Deposits, HDFC Bank did well to run in to September end with a NIM of 4.1%. Advances have grown by 25% from September 2010, for Balance sheet size increase of 20% based on retail loans growth of 30%

The Bank has proved again that efficient management can still help it scale its mature management model as Net NPAs remained a low 0.2% of its Net Advances. and Capital Adequacy also remained at 16% and 11.5% for overall and Tier I based on the current Basel norms in India. India’ s breed of banks continue to grow on equity infusions than a hankering for Tier II capital and thus the bank sizes are inherently not comparable in size to those in China and the USA.

The bank increased PAT to a humongous INR 12 bln ( INR 1199 crores ) or $240 mln for a $1 bln runrate in FY2012 total Balance Sheet assets now exceed INR 3 Tln against INR 8 Tln for SBI and INR 2.5 Tln for ICICI Bank

Advances rose to Rs 189,917 crores or $38 bln and deposits outgrew past the $40 bln watermark More details would be apparent in our series after ICICI Bank results come out at the end of the month and HDFC bank results presentation is formally created/shared for the bank

Advances rose to Rs 189,917 crores or $38 bln and deposits outgrew past the $40 bln watermark Fee income was higher by 15% over 2010, at INR 983 crs comparing well with Q1’s 1100 crores. The year on year growth in Topline is the same as for Q1 and profits are up nearly 4% from June Other Income also grew more than 8% as Deposits grew 9% from June 2011 keeping the CASA healthy at 47.1% ( CASA had reached 49% last year)

Net Interest Income rose above expectations to cross INR 3000 crores rising less than 10% QOQ from June 2011 Loan provisions were 393 crores or $78 mln a mere 12% of the NII and the Cost Income Ratio was less than 49%

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