The 22 listed banks will have to set aside at least Rs 500 crore by way of capital to comply with the capital adequacy norms announced on Friday by the Reserve Bank of India in its credit and monetary policy for the second half of the year.
Under the new norms, which are to be implemented by the year ending March 31, 2000, all banks will have to provide risk weight of 2.5 per cent on their investments in government and approved securities. The risk weight is to go up to 5 per cent, but the announcement of the additional 2.5 per cent will be made later.
The RBI also introduced an additional risk weight of 20 per cent on government-guaranteed advances, which banks will have to provide for from the next financial year.
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Assuming the same level of investment in government and approved securities, as well as the same level of outstandings in government-guaranteed advances, as on March 31, 1998, a quick study shows that banks will have to provide for an additional Rs 499.62 crore by March 2000.
This study is based on published figures for the 22 listed banks, and assumes that all other parameters like credit and other risk-weighted assets remain at the level as of March 31, 1998.
Data available as of March 31, 1998, shows that the 22 listed banks had an advances portfolio of 17,613 crore covered by the bank/government guarantees. Their investment in government securities amounted to Rs 81,145 crore. Assigning a 20 per cent risk weight to government guarantees leads to a risk-weighted asset base of Rs 3,523 crore and the 2.5 per cent risk weight on government approved securities comes to Rs 2,029 crore.
Banks are required to maintain a 9 per cent capital-to-risk weighted assets ratio. This works out to Rs 499.62 crore that banks will have to set apart as capital.
Banks which are already stretched on their capital adequacy front will have to raise additional capital, while the additional CAR on account of these norms will lead to a drawdown of the CAR for the stronger banks.
State Bank of India, with advances of Rs 9,097 crore covered by the government guarantees and Rs 39,177 crore on government securities will have to provide capital of Rs 251 crore to comply with the capital adequacy ratio of 9 per cent on risk weight.
Bank of India will have to provide Rs 61 crore for CAR while Bank of Baroda will have to provide Rs 34 crore as CAR based on the figures available as on March 31, 1998.
Dena Bank, Jammu & Kashmir Bank and Oriental Bank of Commerce will have to provide CAR of Rs 20 crore each.