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RBI revises Basel III capital norms, halves maturity to 5 years

Banks can also issue tier II capital instruments with a minimum maturity of at least 5 years compared to 10 years at present.

twitter-logo PTI   Mumbai     Last Updated: September 2, 2014  | 11:53 IST
RBI revises Basel III capital norms, halves maturity
(Photo: Associated Press)

The Reserve Bank of India (RBI) has issued revised and final guidelines for raising non-equity regulatory capital instruments by banks under the stringent Basel III framework.

Banks can now issue tier II capital instruments with a minimum maturity of at least 5 years compared to 10 years at present, the central bank said late Monday evening. It further said banks can issue tier II debt capital instruments to retail investors, subject to the board approval.

"Banks may now additional tier 1 capital instrument with the principal loss absorption through either conversion into common shares or write-down mechanism (temporary or permanent) which allocates losses to the instruments," the regualtor said in a notification.

RBI, however, said the terms and conditions of all non-equity capital instruments (both additional tier I & II) issued by banks must have a provision that requires such instruments to either be permanently written off or converted into common shares upon the occurrence of the 'point of non-viability (PONV)' trigger event.

The RBI said banks shall ensure the non-common equity capital instruments issued by them meet all the eligibility criteria such as legal, accounting and operational, to qualify for recognition as regulatory capital instruments.

The guidelines said the call option on additional tier I instruments- perpetual non-cumulative preference shares (PNCPS) and perpetual debt instruments (PDIs) will be permissible at the initiative of the issuer after the instrument has run for at least five years.

The loss absorbency features of the instrument should be clearly explained, and the investor's sign-off for having understood these features and other terms and conditions of the instrument should be obtained, RBI said, adding the new norms will be applicable with immediate effect.

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