The Reserve Bank of India (RBI) on 1 September 2014 issued guidelines on implementation of Basel III Capital Regulations. The issued guidelines are to facilitate raising of non-equity regulatory capital instruments by banks under Basel III framework. The guidelines are applicable with immediate effect from 1 September 2014.
Guidelines
• Banks can issue the instruments with the principal loss absorption through either (i) conversion into common shares or (ii) write-down mechanism (temporary or permanent) which allocates losses to the instruments.
• Banks should ensure that the non-common equity capital instruments issued by them meet all the eligibility criteria such as legal, accounting and operational etc., in order for such instruments to be recognised as regulatory capital instruments.
• The Call option on Additional Tier 1 instrument Non-Cumulative Preference Shares (PNCPS) and Perpetual Debt Instruments (PDI) will be permissible at the initiative of the issuer after the instrument has run for at least five years. At present, the Call option on the PNCPS and PDI respectively is permissible only after the instrument has run for at least ten years.
• Banks can issue Tier 2 capital instruments that are Redeemable Non-Cumulative Preference Shares (RNCPS) and Redeemable Cumulative Preference Shares (RCPS) with a minimum original maturity of at least five years compared to ten years at present.
• Banks can issue Tier 2 debt capital instruments (Perpetual Cumulative Preference Shares / Redeemable Non-Cumulative Preference Shares / Redeemable Cumulative Preference Shares) to retail investors, subject to the board approval.
• Banks can issue the instruments with the principal loss absorption through either (i) conversion into common shares or (ii) write-down mechanism (temporary or permanent) which allocates losses to the instruments.
• Banks should ensure that the non-common equity capital instruments issued by them meet all the eligibility criteria such as legal, accounting and operational etc., in order for such instruments to be recognised as regulatory capital instruments.
• The Call option on Additional Tier 1 instrument Non-Cumulative Preference Shares (PNCPS) and Perpetual Debt Instruments (PDI) will be permissible at the initiative of the issuer after the instrument has run for at least five years. At present, the Call option on the PNCPS and PDI respectively is permissible only after the instrument has run for at least ten years.
• Banks can issue Tier 2 capital instruments that are Redeemable Non-Cumulative Preference Shares (RNCPS) and Redeemable Cumulative Preference Shares (RCPS) with a minimum original maturity of at least five years compared to ten years at present.
• Banks can issue Tier 2 debt capital instruments (Perpetual Cumulative Preference Shares / Redeemable Non-Cumulative Preference Shares / Redeemable Cumulative Preference Shares) to retail investors, subject to the board approval.
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