Basel-III- Clarified guidelines Perpetual Debt Instruments

Basel III Capital Regulations - Clarification

Clarified guidelines on ‘Criteria for Inclusion of Perpetual Debt Instruments (PDI) in Additional Tier 1 Capital’:

“Coupons must be paid out of current year profits. However, if current year profits are not sufficient, it may be paid subject to availability of sufficient revenue reserves (those which are not created for specific purposes) or credit balance in profit and loss account.

However, payment from the revenue reserves is subject to the issuing bank meeting minimum regulatory requirements for CET1, Tier 1 and Total Capital ratios at all times and subject to the requirements of capital buffer frameworks (i.e. capital conservation buffer, countercyclical capital buffer and Domestic Systemically Important Banks).

Banks must ensure and indicate in the offer document that they have full discretion at all times to cancel distributions / payments in order to meet the eligibility criteria for perpetual debt instruments.”

Based on RBI Circular dt 14/01/16. Please visit www.rbi.org.in for any further clarification if required…..       Poppy