Currency trading tips using technical analysis: Goldman Sachs

Abstract

The proposed Basel III guidelines intend to prescribe stringent capital and liquidity requirements for the banks in order to improve their ability to withstand the periods of economic and financial stress and thereby avoid the likes of 2008 financial crisis. In our view, the suggested capital requirements are a positive for the economies and the financial industry in particular, as it raises the minimum core capital stipulation, introduces counter-cyclical and capital conservation measures, and thus enhances bank's ability to survive periods of stress. The prescribed liquidity requirements will bring uniformity in the liquidity standards followed by banks globally and help them manage the pressure on risk adequately. In our quest to study these proposed changes, we took a sample of 8 Indian Banks to study the impact of Basel III guidelines on the Indian Banking Industry in particular. Our study showed that the sample Indian Banks were adequately capitalized. And thus on the basis of this study, we think it is fairly safe to assume that the Indian banks will find it comparatively easier to make the transition to a stricter capital requirement regime than some of their international counterparts. The primary reason for this is that the regulatory norms on capital adequacy in India have always been more stringent, and also because most Indian banks have historically maintained their core and overall capital well in excess of the regulatory minimum. On the aggregate basis, we found that the capital requirements as suggested by the proposed Basel III guidelines would necessitate Indian banks to raise Rs. 2.5 lac cr. in external capital over next ten years, besides lowering their leveraging capacity. Given their dominance, it is the public sector banks that would require most of this capital, since most of the recent infusion in them has come from the Government of India in the form of Tier II capital but Basel III makes norms stricter for core Tier I capital. Further, a higher level of core capital could dilute the return on equity for these banks. Nevertheless, as for the liquidity requirement, the guidelines prescribed under Basel III are more or less in parallel to the existing norms of RBI and does do not pose threat to the Indian banks.