Mumbai, Jan. 9: The draft Basel-3 guidelines announced by the Reserve Bank of India recently are more conservative than the actual norms but they will be credit positive for the domestic banking sector, credit rating agency Moody’s Investors Service said today.

Moody’s, however, added the guidelines could impact lenders such as the Central Bank of India and IDBI Bank the most as their current core equity capital was far below the proposed level. Banks such as the Indian Overseas Bank, Yes Bank and the State Bank of India can also come under pressure to beef up their capital bases.

The central bank announced the draft Basel-3 guidelines late last month and said its implementation would begin from March 31, 2013. It will be completed by March 31, 2017.

The RBI has proposed that banks should have a common Tier 1 equity capital, that is 5.5 per cent of their risk-weighted assets against 3.6 per cent at present. It has also suggested the introduction of a capital conservation buffer of 2.5 per cent from 2014-17, thus taking the total core equity requirement to 8 per cent by March 31, 2017.

“We interpret these draft guidelines as more conservative than the Bank for International Settlements (BIS) norms and view them as credit positive for the banking sector. The draft guidelines reflect the RBI’s policy of ensuring Indian banks have extra stress-absorption capacity if the operating environment worsens,” Moody’s said today. The rating agency added that one of the key difference between the RBI’s guidelines and that of the BIS was that India’s central bank had proposed a more stringent minimum common equity of 5.5 per cent against 4.5 per cent recommended by the BIS. It is also proposing an earlier deadline for the implementation of a 2.5 per cent capital conservation buffer of March 2017 versus BIS’s deadline of January 2019.

“We expect the effect on individual banks to vary, with the Central Bank of India and IDBI Bank likely to be the most affected because both currently have core equity capital significantly below 8 per cent. These two banks would face the difficult choice of either raising fresh equity capital or reducing business growth and risk weighted assets. We also expect Indian Overseas Bank, Yes Bank and the SBI to face pressure to strengthen their capital under the new regime,” the rating agency added.

However, Moody’s is not the only entity that has said that the RBI’s norms are relatively more stringent. Recently rating agency Crisil said in a report that its guidelines could lead to Indian banks facing the challenge of raising additional capital to maintain their growth.