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Basel III norms will kick-start from January 1, 2013
- The draft guidelines prescribe minimum capital requirements and also capital conservation buffer, other guidelines are as:.
- common equity Tier-1 (CET1) capital must be at least 5.5 per cent of the risk-weighted assets (RWAs)
- total capital to be at least 9 per cent of RWAs
- capital conservation buffer in the form of common equity of 2.5 per cent of RWAs
- a counter-cyclical buffer within a range of 0-2.5 per cent of common equity or other fully loss absorbing capital will be implemented according to national circumstances
- instruments, which no longer qualify as regulatory capital instruments, will be phased out during the period beginning from January 1, 2013, to March 31, 2022.
- banks are expected to strive to operate at a minimum Tier-1 leverage ratio of five per cent
- The capital conservation buffer is designed to ensure that banks build up capital buffers during normal times (that is, outside periods of stress), which can be drawn down as losses incurred during the stressed period.
- The capital conservation buffer requirement is proposed to be implemented between March 31, 2014, and March 31, 2017.
- The objective is to improve the quality of capital.
- The purpose of counter-cyclical buffer is to achieve the broader macro-prudential goal of protecting the banking sector from periods of excessive aggregate credit growth
- The counter-cyclical capital buffer would be introduced as an extension of the capital conservation buffer range.
- For OTC derivatives, in addition to the capital charge for counterparty default risk under current exposure method, banks will be required to compute an additional credit value adjustments (CVA) risk capital charge.
Current account deficit widens
- The Reserve Bank of India said
- the foreign exchange reserves (on a balance of payments basis, that is, excluding valuation effects) increased by $5.70 billion during April-September 2011-12
- On a balance of payments (BoP) basis, merchandise exports recorded a growth of 47.2 per cent (year-on-year) during second quarter of 2011-12
- Despite higher growth in exports relative to imports, the trade deficit widened to $43.9 billion
- Services receipts recorded a growth of 9.3 per cent (year-on-year), led by software, travel and transportation. Services payments
- the current account deficit (CAD) was $16.90 billion in the second quarter of 2011-12.
- There was, thus, a negligible accretion to foreign exchange reserves ($300 billion) during second quarter of 2011-12 (excluding valuation)
- The financial account surplus improved mainly on account of buoyancy in FDI inflows and loans.
2011, a year of downslide for investors
- The debt crisis in Europe, slowdown in the U.S. economy and domestic concerns such as high inflation, poor credit offtake, depreciation of the rupee against the dollar and other major currencies, had a disastrous impact on the Indian stock markets in the just concluded calendar year 2011.
- The Sensex (benchmark index of the Bombay Stock Exchange) ended the year losing 5054.17 points (24.6 per cent) in one year to close at 15454.17 on December 30, 2011.
- The Nifty of the National Stock Exchange lost 1510.20 points (23.7 per cent) to close at 4624.30.
- Foreign institutional investors (FIIs) turned heavy sellers in equities in 2011 with their net investment turning negative
- The heavy offloading by FIIs resulted in 12 of the 13 sectoral indices closing in the red, with some of them hitting 52-week lows during 2011.
- Only the FMCG (fast-moving consumer goods) sector finished the year with a moderate gain of 8 per cent.
- The FMCG sector could do well due to a rise in demand for the products in the rural markets.
- Realty stocks suffered the most with the CNX Realty index of the National Stock Exchange dropping by 49 per cent.
- The infrastructure index, CNX Infra, lost 38 per cent,
- The banking sector suffered due to reduced credit offtake impacting their core operations.
- Only the treasury and other non-banking operations, such as distribution of mutual fund and insurance products, helped some banks to report a better performance.
RBI amends fiat on IRFs on G-Secs
- The Reserve Bank of India amended its directions on Interest Rate Futures (IRFs) on Government Securities (G-Secs) permitting two-year and five-year IRFs
- The final settlement price of the two-year and five-year IRF contracts would be based on the yields of the basket of securities (as specified by respective stock exchanges) and disseminated by Fixed Income Money Market and Derivatives Association of India (FIMMDA) for the limited purpose of settlement of IRF contracts
