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RBI to ease Capital Adequacy norms amidst the Parliament’s request

The Parliamentary committee on Finance have asked the Reserve Bank of India to ease the Capital Adequacy Ratio norms for the banks operating in the nation. In the report in tabled in the parliament on Thursday, it has also asked the RBI to review the supervisory framework of Prompt Corrective Action. Further the parliamentary house urged the government to set up a committee to look into issues concerning accountability of the Central Bank as a regulator.

The Central bank is further asked to evaluate the efficacy of it’s own guidelines in dealing with frauds. Besides the committee headed by veteran Congress leader M Veerappa Moily also suggested increasing the retirement age of the chiefs of Public Sector banks to 70 years and effect proper manpower management and planning HR development strategies in the Public Sector Banks.

The Capital Adequacy Ratio (CAR) is a measure of a bank’s available capital expressed as a percentage of a bank’s risk-weighted credit exposures. This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. Generally, a bank with a high capital adequacy ratio is considered safe and likely to meet its financial obligations.

Currently, the minimum ratio of capital to risk-weighted assets is 8 per cent under Basel II and 10.5 per cent under Basel III. High capital adequacy ratios are above the minimum requirements under Basel II and Basel III. Minimum capital adequacy ratios are critical in ensuring that banks have enough cushion to absorb a reasonable amount of losses before they become insolvent and consequently lose depositors’ funds.

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