Don't ignore risks

Diluting capital adequacy norms in banks imprudent

The Union government will reportedly hold discussions with the Reserve Bank of India (RBI) in an attempt to have the regulator dilute the capital requirements for Indian banks. The hope is that the RBI will reduce the common equity tier — I (or CET-I) ratio for Indian banks. This is the ratio of common stock and reserves divided by its risk-weighted assets; as a percentage, Indian banks are currently required to keep at least 5.5 per cent of such capital in reserve. However, the international Basel-III standards are less stringent, requiring banks to keep 4.5 per cent in hand. The