Though Indian banks are adequately capitalised, they will have to raise substantial capital to the fund the growing economy, the Reserve Bank of India (RBI) has said. The government has announced a Rs 16,500 crore recapitalisation plan for banks. It had infused Rs 5,691 crore until July.
“In addition to recapitalisation by the Union government, in the medium to long run, banks will have to continue to shore up their capital base to support higher credit growth,” RBI said. However, the proposed enhanced Basel II norms—which require banks to raise their capital significantly—will not have a big impact on Indian banks.
In 2009-10 (April-March), Indian banks’ capital adequacy ratio was far above the regulatory norm. As on end March, the capital adequacy ratio of Indian banks was 13.6 per cent as compared with 13.2 per cent a year ago. Regulation requires nine per cent CAR. Nevertheless, RBI sees some negative impact due to certain deductions from Tier-I and Tier-II capital being shifted to common equity. A few banks might be called upon to maintain additional capital and liquidity charges to cover systemic risk capital and liquidity, RBI said.
