Page 50 - Banking Finance October 2015

ARTICLE

by the Bank to transform its role into a Strategic function
aligned with Business Objectives, Bank has initiated Enter-
prise Risk Management (ERM) framework.

6. Capital Adequacy Norms

The RBI introduced the risk assets ratio system for banking
in India as a capital adequacy measure. Under the system,
the balance sheet assets, non-funded items and other off-
balance sheet exposure were assigned risk weight
according to the prescribed percentage. The weighted
aggregate of the degree of credit risk is expressed as
percentage of the funded and non-funded item. The
aggregate is used to determine the minimum capital ratio.

The risk-weighted assets ratio approach to capital 2002. The Narasimham Committee has also suggested
adequacy is more equitable as institutions with a high risk that there should be no further recapitalisation of banks
assets profile have to maintain a higher level of capital. from the Government budget. However, the Committee is
The integration of the on-balance sheet and the off- silent on recapitalising the co-operatives which must be
balance sheet exposures into the capital ratio would strengthened for ensuring adequate flow of credit to the
promote risk sensitivity and skills to manage the risk and rural sector.
structure balance sheet in a prudent manner. Thus, capital
adequacy is the ratio of capital to risk-weighted assets. 6.1. Credit Deposit Ratio (C/D Ratio)

According to the Bank of International Settlement (BIS) Credit Deposit Ratio is the proportion of loan-assets cre-
norms, co-operative banks were required to maintain a ated by a bank from the deposits received. Credits are the
minimum capital to risk asset ratio of eight per cent. loans and advances granted by the bank. In other words,
Adoption of this norm will be advantageous in many ways. it is the amount lent by the bank to a person or an organi-
It does not distinguish between small or big, commercial zation which is recovered later on. Deposit is the amount
or co-operative, banks. accepted by bank from the savers and interest is paid to
them. Credit deposit ratio is explained in the table - 1.
However, co-operative banks are different from commer-
cial banks and as such capital adequacy norms as applied Table - 1
to commercial banks cannot be made applicable to co- Credit Deposit Ratio during the period from
operative banks. It is felt that the RBI should help co-op-
erative banks in getting restrictive provisions of the State 2008-09 to 2013-14
Co-operative Act removed and then prescribe a time
schedule for attaining capital adequacy norms. Year Deposits Advances C/D ratio

As per the RBI guidelines, the minimum capital adequacy 2008-09 (Rs. in crores) (Rs. in crores)
ratio of nine per cent be maintained by the Indian Banks 2009-10
since March 2000 according to the Basle Committee Rec- 2010-11 537404 416768 77.5
ommendations. Commercial banks are required to achieve 2011-12
9 per cent Capital Risk Weighted Assets Ratio (CRWAR) by 2012-13 742073 542503 73.11
31st March, 2000. It should be noted that the 2013-14
Narasimham Committee has suggested an increase in 933933 756719 81.02
capital adequacy ratio to 10 per cent to be achieved by
1043647 867579 83.13

1202739 1045616 86.94

1394409 1209829 86.76

Source: Compiled from the annual records of SBI.

50 | 2015 | OCTOBER | BANKING FINANCE

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