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Basel III : Capital treatment of Banks' Balance Sheet items

Basel III : Capital treatment of Banks’ Balance Sheet items


The extant regulations with regard to the regulatory capital of banks in India are different from internationally adopted Basel III capital standards. With a view to bringing the Banks’ Balance Sheet Items in closer Alignment with Basel Framework, RBI has reviewed the position and  made some amendments to the capital adequacy guidelines for the purposes of determining banks’ regulatory capital. The salient features of the amendments are herein below;
1.Treatment of revaluation reserves:
On a review of the existing capital adequacy guidelines, the Reserve Bank of India  made some amendments to the treatment of certain balance sheet items for the purposes of determining banks’ regulatory capital. Accordingly Revaluation reserves arising from change in the carrying amount of a bank’s property consequent upon its revaluation would be considered as common equity tier 1 capital (CET1) instead of Tier 2 capital as hitherto. These would continue to be reckoned at a discount of 55 per cent.The above treatment is subject to a condition that the revaluation of property should be realistic in accordance with Indian Accounting Standard.2.Treatment of foreign currency translation reserve (FCTR):
Foreign currency translation reserve arising due to the translation of financial statements of bank’s foreign operations in terms of Accounting Standard (AS) 11 as CET1 capital which is reckoned at a discount of 25%. The Deferred tax assets arising due to timing differences may be recognised as CET1 capital up to 10% of a bank’s CET1 capital.The above treatment is subject to a condition that the FCTR are shown as ‘Reserves & Surplus’ in the Balance Sheet of the bank under schedule 2;.
3.Treatment of deferred tax assets (DTAs):
The DTAs are associated with accumulated losses and other such assets. Such losses should be deducted in full from CET1 capital. However, the DTAs other than accumulated losses due to the timing difference may be recognised in the CET1 capital up to 10% Bank’s CET1 capital instead of the full deduction.
The treatment of items mentioned is subject to the conditions that the external auditors of the bank have not expressed any qualified opinion on them. ms for the purposes of determining banks’ regulatory capital. The review was carried out with a view to further aligning the definition of regulatory capital with the internationally adopted Basel III capital standards, issued by the Basel Committee on Banking Supervision (BCBS).

The treatment of items mentioned is subject to the conditions that the external auditors of the bank have not expressed any qualified opinion on them.

(2) Comments

  1. Kaustubh Agrawal

    Hello sir, I have applied for a masala making unit project with cost Rs 700000/- the financing company (money sphere finance ) asked for a collateral of 70000/- which would be refundable with the loan amount. Now they are asking for another 54900/- as first 6 months emi which would be as security as i am not providing any collateral . All the application process happened within 7 days . Is it some fraud happening with me ?? Pl. Guide me sir at the earliest

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