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Banks may not have adequate capital if macro-economic conditions worsen

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Kolkata: The capital position of Indian banks is in question.

While almost all banks meet the capital ratio, if looked at from a different angle, after factoring in bad loans and provision coverage, just two lenders hurdle the capital adequacy threshold comfortably and six are borderline. Banking regulator Reserve Bank of India (RBI) has predicted that as many as five banks may see capital to risk weighted assets ratio (CRAR) decline below the minimum stipulated level of 9 per cent by March 2020 if New Delhi does not infuse further capital. If macroeconomic conditions deteriorate, the central bank cautioned that nine banks may face erosion of CRAR below 9 per cent. “As far as public sector banks are concerned, the proof of the pudding lies in their ability to attract private capital through market discipline rather than being overly dependent on the government for capital,” RBI said in its financial stability report (FSR) released Thursday. RBI has made the capital projection assuming minimum 25 per cent profit transfer to capital reserves for profit-making banks.

“The significant rise in provisioning has impacted bottom-lines of PSBs.

Efforts to improve the balance sheets of banks should, therefore, continue,” RBI said. The regulator forced banks to recognise bad loans leading to the non-performing assets cycle peaking in March 2018, with the gross ratio declining marginally to 9.3 per cent in March 2019. Recapitalisation of banks helped public-sector lenders report higher provision coverage and capital adequacy. The collective CRAR of all banks improved to 14.3 per cent in March 2019 from 13.7 per cent in September 2018 after recapitalisation of public banks.

Their CRAR improved to 12.2 per cent from 11.3 per cent.




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