The Hindu Business Line : Capital adequacy ratio of banks down

Of a total of 85 commercial banks, the capital adequacy ratio of 57 banks was 10-15 per cent.
The CRAR of scheduled urban co-operative banks was 12.1 per cent at the end of 2005-06, marginally lower than 12.7 per cent in the previous year.

Mumbai , Aug 30

The Reserve Bank of India, in its annual report, has said that there has been some decline in the capital adequacy ratios of banks, while remaining above the mandated minimum of nine per cent.

"The decline in capital adequacy ratio during 2005-06 could be attributed to the higher rate of increase in total risk weighted assets vis-à-vis the expansion in capital during the year."

The higher growth in risk weighted assets follows a steep rise in advances compared to investments in Government securities and a mark-up in risk weights for personal loans, real estate and capital market exposure.

Although the overall capital adequacy ratio of banks declined, the core capital (Tier I) ratio moved up from 8.4 per cent as of March 2005 to 9.3 per cent in March 2006. Only three commercial banks, of which one is under a moratorium, could not meet the prescribed capital adequacy needs as of 2005-06.

Of a total of 85 commercial banks, the capital adequacy ratio of 57 banks was 10-15 per cent. The CRAR (capital to risk weighted assets ratio) of the scheduled urban co-operative banks was 12.1 per cent at the end of 2005-06, marginally lower than 12.7 per cent in the previous year.

The asset quality of banks has improved with the gross and net NPA ratios dropping to historically low levels of 3.5 per cent and 1.3 per cent, respectively as on March 31, 2006.

In terms of profitability, 45 out of 85 banks recorded an increase in the profits ratio during the year.

The return on assets of primary dealers witnessed a substantial turnaround to touch 5.6 per cent in 2005-06. It had turned negative in the previous year following a rise in interest rates.

However, the capital market exposure of the banking system, as a percentage of gross advances, stood at 2.1 per cent at the end of the fiscal - within the regulatory limit of five per cent.

The RBI has also alerted Indian banks with foreign presence to update their risk management systems for easy migration to advanced approaches under Basel II.

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