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RBI unlocks 40000 crores to capitalize banks

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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 banksRBI stretched out SAARC Swap Arrangement
  • 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