RBI breather to reduce PSU banks' extra capital need by 15%

RBI breather to reduce PSU banks' extra capital need by 15%: RBI breather lets SBI, BoB capital adequacy ratios climb up by 100 basis points



My VIEW:

Reserve Bank of India on March 2, 2016 allowed Indian commercial banks to recognise some of their assets, such as part of their revalued real estate assets, foreign currency and deferred tax, with suitable haircuts for the purpose of computing common equity tier-1(CET-1)-paid up capital, reserves and provisions. The move is aimed to boost the regulatory capital of banks and align it with the international Basel-III capital standards.

Hidden reserves add to the strength of balance sheets of banks, corporates, individuals and institutions including governments. As a nation, India is blessed with a large amount of such reserves, which fortunately remain out of reach of ‘exploiters’. There is nothing ethically wrong in drawing from such reserves in times of need.

I remember, when Goenka was confronted by media when The Indian Express was not able to keep due dates for repayment of certain deposits, he kept his cool and responded that only ‘liquidity’ was a problem and assets like Express Towers were there and depositors will be paid back by the company. More recently, there was a report about thousands of crores worth gold and jewellery with Sreepadmanabha Temple in Thiruvananthapuram. Referring to some old records a representative of the
Trustees had told media that Maharaja of Travancore who had taken care to keep his assets untouched had also indicated that it was also the intention of ancestors to draw from those assets in times of need like famine and later replenish it in good times.

It is not a crime to productively re-deploy or to ‘account’ hidden wealth, whether it be land with Railways, real estate properties with PSUs, undervalued items in the balance sheets of banks or GOI’s stakes in institutions. But that should be done with a realistic
Asset-Liability- Management approach.
Coming back to banking, in the past, banks in India did fold up, despite having ‘hidden reserves’ adequate to meet payment to the last paisa, as the assets available were not

liquid when they faced a run.

M G Warrier