The banking regulator, Reserve Bank of India, expects "tough times" ahead for Indian banks and has said that RBI's and Indian government's ability to manage crises may be put to test in the coming times.
Though RBI Governor, D. Subbarao, has said that a large number of Indian banks are sufficiently capitalized, many bankers are of the opinion that it would be challenging for the domestic banks to meet the new Basel-III capital requirements. It is reported that there are related concerns that the Indian government may find it hard to help public sector banks in fulfilling their capital adequecy requirements.
The new Basel-III norms make it mandatory for Indian banks to keep their capital adequacy ratio at 9 percent, plus maintain their capital conservation buffer. The buffer has to be maintained as common equity and has to be kept at 2.5 percent of the bank's risk weighted assets. This means that banks have to maintain a minimum capital adequacy ratio of 11.5 percent.
Industry experts also speculate that the central bank's role in the economy and banking industry may get affected due to excessive interference of the government.