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With capital adequacy intact, Basel II norms overlooked by high NPA ridden banking sector: ASSOCHAM

Most of the Indian banks have improved on their capital adequacy ratio in line with the global Basel II norms but need to do more on international risk management practices in the wake of increasing pressure of non-performing assets, according to an ASSOCHAM Eco Pulse (AEP) Study.

According to AEP on “Indian Banks and Basel Accord II”, the financial health of Indian banking system has improved significantly in terms of capital adequacy ratio (CAR) during the third quarter of the fiscal 2007-08. In comparison to the mandated limit of 9 per cent CAR posed by the Basel II, the average capital adequacy ratio of commercial banks went upto 13 per cent in FY 08 from 12 per cent in the previous year.

However, the ASSOCHAM Study has expressed concern over the risk management practices of the banks. It said that 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. 14166.65 crore from Rs. 11270.32 crore in the previous financial year. Gross NPAs of banks rose by about 14 per cent from Rs. 28392.58 crore to Rs. 32129.48 crore.

With a view to ensuring migration to Basel II in a non-disruptive manner, the SCBs 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. He also laid emphasis on the significance of reducing NPA level specifically in view of the crisis faced by the financial sector in US due to unhealthy lending practices.

Maximum rise of 266 per cent in net NPAs was witnessed by 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 had the maximum rise upto 16.88 per cent in Q3, FY 2007-08 from 11.83 per cent a year earlier. ICICI Bank appeared at 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 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.

Banknet's "Fourth Annual CXO-CTO Summit" on 15th May, 2008 will discuss Risk Management, Basel II, Credit Management and related issues. Banknet will also release the findings of "Financial Systems Survey 2008" at the Summit. ... Click for more



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