Estimating the Basel III Capital Requirement for Indian Banks

Abstract

Abstract The study estimates the Basel-III capital requirement for Indian banks employing the methodology incorporating the reported tier-1, tier-2 capital, total capital and risk-weighted assets (RWAs) sourced from the Basel disclosures made by the banks on their websites. In order to understand the strategy and the response of different bank groups based on their ownership styles, this study, groups the banks into scheduled commercial banks, public sector banks group, and private banks and considers the data for the period 2002 – 2011. The results suggest that with an assumed growth of RWAs at 10%, banks in India would require additional minimum tier-1 capital of INR 2.51 trillion. With an assumed RWAs growth at 12% and 15%, the requirement would be in the order of INR 3.36 trillion and INR 4.74 trillion respectively. JEL classifications: E44, E61, G2, G21, G28 Keywords: Basel III, capital and liquidity, commercial banks, capital, countercyclical capital buffers, financial (in)stability