Capital adequacy ratio to rise 44bps 
Red Book
Red Book

Interview Guidance Program (IGP) for UPSC CSE 2024, Registrations Open Click Here to know more and registration

Capital adequacy ratio to rise 44bps 

Context:

  • Capital adequacy ratio will go up by 44 bps.

Introduction:

  • The state-run banks that will receive capital from the government will use it to meet provisioning requirement for accounts that facing bankruptcy proceedings.
  • This was mandated by the banking regulator, State Bank of India (SBI)- the country’s largest lender.
  • SBI will receive ₹8,800 crore capital from the government this financial year out of ₹88,139 crore allocated to 20 banks.
  • SBI’s capital adequacy ratio was 13.56% as on 30 September, 2017.

What was the main objective of this capital infusion?

  • The purpose of funding credit growth is to secure capital for next financial year. This will help in taking care of further growth capital requirement.
  • This capital is not for regulatory purpose but for growth.

What will be the impact on capital adequacy post this fund infusion?

  • The impact on capital adequacy ratio is about 44 bps points.

Capital adequacy ratio:

  • Capital Adequacy Ratio (CAR) is also known as Capital to Risk (Weighted) Assets Ratio (CRAR), is the ratio of a bank’s capital to its risk.
  • It is a measure of a bank’s capital.
  • It is expressed as a percentage of a bank’s risk weighted credit exposures
  • This ratio is used to protect depositors and promote stability and efficiency of financial systems around the world.
  • Two types of capital are measured: tier one capital, which can absorb losses without a bank being required to cease trading, and tier two capital, which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors.
  • Capital adequacy ratio is the ratio which determines the bank’s capacity to meet the time liabilities and other risks such as credit risk, operational risk etc.

Discover more from Free UPSC IAS Preparation Syllabus and Materials For Aspirants

Subscribe to get the latest posts sent to your email.

Print Friendly and PDF
Blog
Academy
Community