Indian Banks now Basel II compliant; Study

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New Delhi, Mar 11 (UNI) An ASSOCHAM Eco Pulse study today brought out that most Indian banks have improved their capital adequacy ratio in line with the requirements of global Basel II norms, but suggests that they need to to do more on international risk management practices in the wake of increasing pressure to bring down Non-Performing Assets (NPAs).

Entitled 'Indian Banks and Basel Accord II', the study shows that the financial health of the Indian banking system has improved significantly. For instance, this improvment is vivid in terms of Capital Adequacy Ratio (CAR) during the third quarter of the fiscal 2007-08.

In comparison to the mandated limit of CAR of nine per cent, the average capital adequacy ratio of commercial banks went up to 13 per cent in FY 08 from 12 per cent in the previous year.

The study, however, expresses concern over the risk management practices of the banks.

It said the net Non-Performing Assets of 14 commercial banks, in absolute terms, have increased by 25.70 per cent in the third quarter of current financial year to Rs 14,166.65 crore from Rs 11,270.32 crore in the previous financial year.

Gross NPAs of banks increased by about 14 per cent from Rs 28,392.58 crore to Rs 32,129.48 crore.

"With a view to ensuring migration to Basel II in a non-disruptive manner, the Scheduled Commercial Banks in India may need to have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels", ASSOCHAM President Venugopal N Dhoot said.

He also laid emphasis on reducing the NPA level, specifically in view of the crisis faced by the financial sector in the United States due to unhealthy lending practices.

The highest rise of 266 per cent in net NPAs was witnessed in the case of Punjab National Bank in Q3, 2007-08, followed by Centurion Bank of Punjab with an increase by 125 per cent, ICICI Bank (77 per cent), Vijaya Bank (49 per cent), HDFC Bank (37.46 per cent) and State Bank of India (25 per cent).

In terms of capital adequacy ratio, Axis bank recorded the maximum increase of up to 16.88 per cent in Q3, FY 2007-08 from 11.83 per cent a year earlier.

ICICI Bank took the second position with an increase from 13.37 per cent to 15.82 per cent in the current financial year.

Other banks which registered a significant rise in CAR include ING Vysya Bank, whose ratio rose to 12.23 per cent over and above 10.70 per cent in the previous year, HDFC Bank from 12.80 per cent to 13.80 per cent and Centurion Bank of Punjab from 10.50 per cent in the previous fiscal to 11.50 per cent in the current fiscal.

Among the public sector majors, capital adequacy ratio of Bank of Baroda reached 13.51 per cent at the end of third quarter in the FY 2007-08 as compared to 12.24 per cent in the corresponding period of the previous year.

Punjab National Bank turned the corner by recording an increase in its CAR against a decline in the previous financial year. Its capital adequacy ratio dropped to 12.9 per cent from 13.99 per cent in Q3, 2006-07. However, in Q3, 2007-08, it saw an upward trend of 14.04 per cent against 12.90 per cent in the similar period, last fiscal.

State Bank of India managed to increase its CAR to 12.28 per cent from 11.86 per cent, in contrast to a decline to 11.86 per cent from 12.49 per cent in the FY 2006-07.

However, few players experienced a decline in their CARs, but they still managed to remain above the nine per cent limit.

Capital Adequacy Ratio of IDBI Bank has decreased to 13.31 per cent from 14.09 per cent at the end of Q3 and Union Bank's CAR went down to 13.03 per cent from 13.21 per cent.

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