Page 199 - DCOM208_BANKING_THEORY_AND_PRACTICE

Banking Theory and Practice

Notes Self Assessment

Fill in the blanks:
1. Committee on Banking Regulations and Supervisory Practices is also known as ......................
2. The Basel Committee released the guidelines on capital ....................... and capital
.......................
3. CAR is the ratio of Capital fund to ....................... weighted ratio.
4. The information provided by the net worth to total assets ratio is overall financial leverage
relating to the assets held on .......................

Caselet RBI for more Tier-I Capital Adequacy than Basel III
Norms

he Reserve Bank of India (RBI) on Thursday indicated it would prescribe higher
capital adequacy norms than those proposed under the Basel III framework. This
Twould help sustain the advantage of healthy financial profiles that Indian banks
currently enjoy.
At the Risk and Compliance Summit on Thursday, Deepak Singhal, chief general manager,
RBI, said, “A requirement of one per cent above the floor set under Basel III would not
impact Indian banks. RBI would not like our banks to be seen as laggards.” The central
bank, in its draft guidelines issued in December, had proposed that the common equity
Tier-I capital should be at least 5.5 per cent of Risk Weighted Assets (RWAs). Basel III
norms prescribe minimum common equity of 4.5 per cent.
RBI has proposed Tier-I capital of at least seven per cent and said the total capital be kept
at least nine per cent. It has also proposed a capital conservation buffer in the form of
common equity of 2.5 per cent of RWAs.
According to RBI, Indian banks would not have a problem in adjusting to the new capital
rules, both in terms of the quantum as well as the quality. Quick estimates suggest the
capital adequacy of Indian banks under Basel III norms would be 11.7 per cent, compared
with the required capital to risk (weighed) asset ratio of 10.5 per cent under the Basel III
norms.
Singhal said many developed and emerging countries had stringent norms to maintain a
higher capital base. In Sweden, banks have to maintain a Capital Adequacy Ratio (CAR) of
at least 15 per cent, while in Argentina, banks can pay dividend only when the CAR is 18
per cent or more.
Rating agency ICRA said public sector banks’ median capital adequacy levels declined
from 13.4 per cent on March 31, 2011, to 12.1 per cent on December 31. Tier-I capital of these
banks fell from 8.7 per cent to 8.3 per cent in the same period. The capital adequacy ratios
of all large private banks remain comfortable. Their median capital adequacy stood at 16.3
per cent, while the Tier-I capital was 11.2 per cent in December.
Source: http://www.business-standard.com/article/finance/rbi-for-more-tier-i-capital-adequacy-than-
basel-iii-norms-112030200035_1.html

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