Banking News

National financial institutions including Exim, SIDBI, NABARD to implement basel 3 norms from April 2024


The Reserve Bank of India has brought in national financial institutions such as NABARD, SIDBI and EXIM Bank under the Basel III prudential regulations that would strengthen financial stability.

As per the final directions released on Thursday has stipulated that these financial institutions maintain a total minimum total capital of 9 percent under the first pillar. While they are required to maintain a minimum common equity capital of 5.5 percent and minimum tier1 capital of 7 percent.

The Capital Adequacy Framework rests on three components or three Pillars. Pillar 1 is the Minimum Capital Ratio while Pillar 2 and Pillar 3 are the Supervisory Review Process (SRP) and Market Discipline, respectively.

The new norms will be applicable to the national financial institutions – Exim Bank, Nabard, Sidbi and NabFid from April 2024. For NHB it will be applicable from July 1, 2024. The draft Directions were released for public comments on October 22, 2021. These ratios will have to be complied both at group level as well as stand alone basis. The commercial banks in the country are already complying with Basel 3 norms for a decade now.

Over the years, the role of these financial institutions has undergone significant change reflecting the changes in their business models. As the Indian economy grows further, they are increasingly being seen as key institutions to promote the flow of direct or indirect credit to the economic sectors they cater to, RBI said, underscoring the need for the new prudential norms.

The Reserve Bank will take into account the relevant risk factors and the internal capital adequacy assessments of each institution to ensure that the capital held by an institution is commensurate with its overall risk profile. This would include, among others, the effectiveness of the institution’s risk management systems in identifying, assessing or measuring, monitoring and managing various risks including interest rate risk in the banking book, liquidity risk, concentration risk and residual risk.Accordingly, the Reserve Bank will consider prescribing a higher level of minimum capital ratio for each institution under the second pillar framework on the basis of their respective risk profiles and their risk management systems.


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