The Reserve Bank of India on Tuesday relaxed norms relating to the treatment of certain balance-sheet items, including property, which will help banks unlock capital aggregating about ₹40,000 crore.
This capital relief comes at a time when the banks, especially those in the public sector, are struggling with bad loans, provisioning requirements and falling equity market valuations.
The revised norms will give PSBs access to additional capital of ₹35,000 crore, while it could be about ₹5,000 crore for private sector banks.
The unlocking of capital follows a review carried by the RBI with the aim of further aligning the definition of regulatory capital with the globally adopted Basel III norms.
These standards aim to improve the banking sector’s ability to absorb shocks arising from financial stress and improve risk management and governance.
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.
Analysts say State Bank of India may benefit a great deal from the change in the carrying amount of a bank’s property as it has huge property holdings across the country.
As per RBI norms, CET1 capital, comprising paid-up equity capital, statutory reserves, capital reserves, other disclosed free reserves (if any), and balance in P&L Account at the end of the previous fiscal year, must be at least 5.5 per cent of risk-weighted assets.