Commercial banks better prepared to take credit risks

Commercial banks were better prepared to take risks associated with credit exposure in 2008-09 despite global financial meltdown, as their average capital adequacy ratio grew by 1.13 percentage points over the previous year, a study has found.

Average Capital Adequacy Ratio (CAR) of 10 commercial banks improved from 12.35 per cent in 2007-08 to 13.48 per cent in FY 08-09, a study by industry body Assocham said.

"As a result (of high CAR), the Indian banking sector weathered the storm rising out of the global financial crisis aptly during FY 2008-09," it said.

The increase in CAR of banks including Bank of Baroda, Indian Bank, Bank of India, Syndicate Bank and Punjab National Bank shows that these institutions adopted prudent lending practices and thus showed their strong fundamentals, it added.

Assocham President Sajjan Jindal pointed out that despite global meltdown and failure of big banks in developed countries, the Indian banking sector has remained unaffected as CAR of banks show signs of improvement in compliance with even more rigorous Basel II norms in FY 08-09.

The study stated, after the collapse of Lehman Brothers in September 2008, crumbling banking institutions in the US, the UK and other European countries during 2008-09 sought government support by way of massive capital injections to avert severe implications of toxic financial assets worth $ 4 trillion.