Banking stocks fall on concerns that Basel III will hit profit

Banking stocks fell sharply on Thursday, a day after the Reserve Bank of India (RBI) announced guidelines for implementing Basel III norms that mandate lenders to keep aside a higher percentage of capital, which may hit their profits.

The country's largest private sector lender ICICI Bank slumped 2.46 per cent at Rs 860. The largest lender State Bank of India fell 1.85 per cent to Rs 2099.90.

Axis Bank was down 3.65 per cent to Rs 1,062 at the Bombay Stock Exchange.

The banking index of the Bombay Stock Exchange was down 1.52 per cent at 11,680 points in the afternoon trade, while the benchmark Sensex was down 0.71 per cent.

RBI on Wednesday issued guidelines for implementation of Basel III norms which will be effective from January 1, 2013, in a phased manner.

The new norm, which will be fully implemented by March 31, 2018, is expected to make lenders keep aside about Rs 1.5 lakh crore more in capital.

The requirement of additional capital for doing the same level of business will adversely affect return on assets and profitability. It will reduce the amount of money bank can lend.

"For the financial year ending March 31, 2013, banks will have to disclose the capital ratios computed under the existing guidelines (Basel II) on capital adequacy as well as those computed under the Basel III capital adequacy framework," the RBI said.