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.

Surendra Naik

Share
Published by
Surendra Naik

Recent Posts

Distinction between Capital Receipt and Revenue Receipts

There are two different types of receipts that a business or a government generates during…

32 mins ago

Govt. revises norms for Dividend payout, Bonus Shares, Stock split, and Share buybacks

The Department of Investment and Public Asset Management (DIPAM) released new guidelines amending its earlier2016…

3 hours ago

Bank Holidays 2025: National Capital Territory Delhi

The Government of the National Capital Territory of Delhi has released the official list of…

1 day ago

Bank Holidays 2025: State of Rajasthan

The Government of Rajasthan in their Order No.16 (1).v.m./2024 dated 19.11.2024 declared bank Holidays under…

1 day ago

Distinguishing Capital expenditure and Revenue expenditure

Meaning of Expenditure and Expenses: Expenditure refers to the total amount spent to acquire goods…

1 day ago

Bank Holidays 2025: Gujarat State

In pursuance of the explanation in section 25 of NI Act 1881, read with the…

2 days ago