RBI policy to hit weak banks

The central bank’s decision to impose a 5 per cent weight for market risk on government and approved securities will force banks to set aside nearly Rs 12,500 crore of their investments, which would add to their CARs. The total investments of the banking industry for the fortnight ended October 9, 1998, stood at Rs 2,48,209 crore. Of this, investments in government securities accounted for Rs 2,16,196 crore while the balance Rs 32,013 crore was accounted for by otherapproved securities’ which includes investments in corporate paper.

The banks that are likely to be hit the most on account of the revised CAR norms are United Bank of India and Indian Bank, which had CARs of less than 9 per cent as on March 31, 1998. Other banks with weak CARs include Punjab National Bank, Catholic Syrian Bank and Benaras State Bank.

Public sector banks were saved by the centre which recapitalised a few banks including Indian Bank and Canara Bank to the tune of Rs 1,500 crore in 1997-98. This helped these banks to improve their CARs.

However, Punjab National Bank which is planning to enter the primary market with its maiden equity issue during the next financial year, will be able to shore up its capital base and achieve the minimum CAR requirements. The bank’s CAR as on March 31, 1998, stood at 8.81 per cent.

Though there are about seven foreign banks whose CARs stand at just above 8 per cent, meeting the CAR requirement of 10 per cent by March, 2002, will not be a problem for themas the required funds will come in from their headquarters overseas. These banks include Bank of America, Citibank, Standard Chartered and Credit Lyonnais among others.

The three old private sector banks — Catholic Syrian Bank, Bank of Rajasthan and Benaras State Bank — had CARs much lower than the currently stipulated 8 per cent. While Bank of Rajasthan and Benaras State Bank had CARs of 5.54 per cent and 4.12 per cent respectively, Catholic Syrian Bank’s CAR was as low as 3.04 per cent.