The Hindu Business Line : Most banks meet capital ratio requirements

MOST scheduled commercial banks have met the capital ratio requirements and have also shown a distinct improvement in asset quality in 2004-05, said RBI in its annual report.

The aggregated capital ratio of scheduled commercial banks at end-March 2005 was marginally lower than at end-March 2004, which could be attributed to the increase in total risk weighted assets relative to capital, for the first time since March 2000.

Higher growth in advances portfolio of banks and higher risk weights made applicable for housing loans - the most rapidly increasing retail loans component - contributed to the increase in risk-weighted assets.

The core capital (Tier-I) ratio of banks increased from 8.1 per cent at end-March 2004 to 8.5 per cent at end-March 2005, as some banks raised resources from the capital market mostly at substantial premium.

Only two banks could not meet the prescribed capital to risk weighted assets ratio (CRAR) at end-March 2005.

The declining trend in gross and net non-performing assets (NPAs) for scheduled commercial banks, which began in during 2002-03, continued during 2004-05 with the net NPA ratio going below two per cent for the first time.

The fact that the provisioning for NPAs was much lower during 2004-05 indicates that the decline was due to increased recovery and overall reduction in asset slippage. An improved industrial climate also contributed to better recoveries.

Only four banks had net NPAs in excess of 10 per cent of their net advances.

Similarly, the net NPA to capital ratio steadily declined from 21.3 at end-March 2004 to 14.4 per cent by end-March 2005 reflecting the increase in capital, coupled with rapid decline in net NPAs.

In the case of urban co-operative banks, the CRAR increased to 12.7 per cent (11 per cent), while net NPAs declined to 8.9 per cent (20.8 per cent).

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