RBI unlocks 40000 crores to capitalize banks

RBI announced relaxation of certain norms in the balance sheet which will unlock 40,000 crores to support the capital requirement of Indian banks.

Flash points

• Indian banks are facing a huge loss due to the increase in Non Performing assets which have eroded the Capital of these banks
• The revised RBI norms will give public sector banks (PSB) access to additional capital of INR 35,000 crore
• It could be about INR 5,000 crore for private sector banks
• RBI have aligned the definition of regulatory capital according to the new Basel III norms
• Accordingly, Banks have now been allowed to include some items, such as property value and foreign exchange, for calculation of Tier 1 capital (CET1), instead of Tier 2 capital
• Deferred tax assets arising due to timing differences may be recognized as CET1 capital up to 10 per cent of a bank’s CET1 capital
• State Bank of India (SBI) will be one of the biggest beneficiary from the change in the carrying amount of a bank’s property on the balance sheet, as it has huge real estate across the country
• According to the New Norms, CET1 capital, comprising paid-up equity capital, statutory reserves, capital reserves, other disclosed free reserves (if any) and balance in P&L Account must be at least 5 per cent of risk-weighted assets

Points to note

• Finance minister Arun Jaitley has proposed an infusion of 25000 crores for Banks in his budget speech
• RBI governor- Raghuram Rajan