"The main benefit from the one-year moratorium will be the delay in the phase in of the capital conservation buffer from March 2016, instead of FY15, as most other parameters remain the same," rating agency Fitch said in a report.
Earlier last week, RBI extended the transitional period for implementation of the stringent Basel III capital norms by a year to March 2019, as most of the banks are facing stress on account of weak asset quality.
Fitch further said the move will help banks to get some crucial breathing space from the lower 5.5 per cent pre-specified capital trigger on additional tier 1 securities until FY19 when it reverts to 6.125 per cent.
According to Icra, PSBs' tier I capital requirement to meet growth and to meet Basel III norms would increase to Rs 3.9 - 4.2 trillion from Rs 3.3 - 3.6 trillion due to longer transition period.
The report said earlier public sector banks' needed common equity tier I capital of Rs 2 - 2.2 trillion and additional tier I capital of Rs 1.3 - 1.4 trillion during FY15-18, but as per revised schedule this would be marginally higher at Rs 2.5 - 2.7 trillion and Rs 1.4 - 1.5 trillion respectively during FY15-FY19.
"The extension provides short-term breather whereby PSBs' tier I capital requirement for FY15 reduces to less than Rs 15,000 crore as against earlier requirement of Rs 20,000- 45,000 crore, against which the government has budgeted Rs 11,000 crore.
Crisil said that though extension of Basel III capital regulations deadline will have positive implications for banks' total capital requirements, it will increase the risks in the banks' tier I capital instruments, and will lead to higher cost for banks.
The report further said the first risk relates to the higher risk of coupon non-payment for investors arising from the stipulations that banks can pay coupon only out of current year's profits, and that the coupon payout be capped at 40 per cent of a bank's total distributable surplus for the year. The second risk is the increase in potential loss of principal due to the provision that disallows banks to opt for temporary write-down in the event of breach of pre-specified trigger."
"Given both these additional risks, investors will seek higher coupon on banks' non-equity Tier I instruments. This will make it costlier for banks to raise such instruments," Crisil director Rajat Bahl said.
Dion Global Solutions Ltd.