Capital to Risk-Weighted Asset Ratio (CRAR)
• The Narasimhan committee endorsed the internationally
accepted norms for capital adequacy standards,
developed by the Basel Committee on Banking
Supervision (BCBS)
• BCBS initiated Basel I norms in 1988, considered to be
the first move towards risk-weighted capital adequacy
norms.
Capital to Risk-Weighted Asset Ratio (CRAR)
• In 1996 BCBS amended the Basel I norms
• In 1999 it initiated a complete revision of the Basel I
framework, to be known as Basel II.
• In pursuance of the Narasimhan Committee
recommendations, India adopted Basel I norms
– for commercial banks in 1992
– the market risk amendment of Basel I in 1996
– the revised norms of Basel II from March 2008
Basel I
• Basel I is a framework for calculating ‘capital to risk-
weighted asset ratio (CRAR).
• It defines a bank’s capital as two types:
– core (or tier I) capital comprising equity capital and
disclosed reserves;
– Supplementary (or tier II) capital comprising items
such as undisclosed reserves, revaluation reserves,
general provisions/general loan loss reserves, hybrid
debt capital instruments and subordinated term debt.
• Under Basel I, at least 50 per cent of a bank’s capital
base should consist of core capital.
• In order to calculate CRAR, the bank’s assets should be
weighted by five categories of credit risk – 0, 10, 20, 50
and 100 per cent.
Basel II
• Basel II is a much more comprehensive framework of
banking supervision.
• It not only deals with CRAR calculation, but has also got
provisions for supervisory review and market discipline.
• Basel II stands on three pillars:
Basel II Pillars
• Minimum regulatory capital (Pillar 1):
– Revised and extensive framework for capital adequacy
standards, where CRAR is calculated by incorporating credit,
market and operational risks.
• Supervisory review (Pillar 2):
– Provides key principles for supervisory review, risk management
guidance and supervisory transparency and accountability.
• Market discipline (Pillar 3):
– Encourages market discipline by developing a set of disclosure
requirements that will allow market participants to assess key
pieces of information on risk exposure, risk assessment process
and capital adequacy of a bank.
Capital Adequacy Standard in India
• In India, there is a ‘three track’ approach for Basel
compliance
– Commercial banks are Basel I compliant with respect
to credit and market risks
– Urban cooperative banks maintain capital for credit
risk as per Basel I and market risk through surrogate
charges
– Rural banks have capital adequacy norms that are
not on par with the Basel norms
Justification of Three Track Approach
• Necessity to maintain varying degree of stringency
across different types of banks in India reflecting different
levels of operational complexity and risk appetite.
• Ensure greater financial inclusion
• Efficient credit delivery mechanism.
Capital Held by Commercial Banks in India (2009 – 2010)
State Bank of Bikaner and Jaipur
Capital adequacy ratio 14.52 13.30
Capital adequacy ratio - Tier I 8.46 8.35
Capital adequacy ratio - Tier II 6.06 4.95
State Bank of Mysore
Capital adequacy ratio 12.99 12.42
Capital adequacy ratio - Tier I 7.15 7.59
Capital adequacy ratio - Tier II 5.84 4.83
State Bank of Hyderabad
Capital adequacy ratio 11.53 14.90
Capital adequacy ratio - Tier I 7.14 8.64
Capital adequacy ratio - Tier II 4.39 6.26
State Bank of India
Capital adequacy ratio 14.25 13.39
Capital adequacy ratio - Tier I 9.38 9.45
Capital adequacy ratio - Tier II 4.87 3.94
State Bank of Indore
Capital adequacy ratio 13.46 13.53
Capital adequacy ratio - Tier I 7.91 8.58
Capital adequacy ratio - Tier II 5.55 4.95
State Bank of Patiala
Capital adequacy ratio 12.60 13.26
Capital adequacy ratio - Tier I 6.94 8.16
Capital adequacy ratio - Tier II 5.66 5.10
Capital Held by Commercial Banks in India
(2009 – 2010)
State Bank of Travancore
Capital adequacy ratio 14.03 13.74
Capital adequacy ratio - Tier I 8.59 9.24
Capital adequacy ratio - Tier II 5.44 4.50
Capital Held by Commercial Banks in India
(2009 – 2010)
Capital Held by National Banks (2009 – 2010)
Allahabad Bank
Capital adequacy ratio 13.11 13.62
Capital adequacy ratio - Tier I 8.01 8.12
Capital adequacy ratio - Tier II 5.10 5.50
Andhra Bank
Capital adequacy ratio 13.22 13.62
Capital adequacy ratio - Tier I 8.67 8.12
Capital adequacy ratio - Tier II 4.55 5.50
Bank of Baroda
Capital adequacy ratio 14.05 14.36
Capital adequacy ratio - Tier I 8.49 9.20
Capital adequacy ratio - Tier II 5.56 5.16
Bank of India
Capital adequacy ratio 13.01 12.94
Capital adequacy ratio - Tier I 8.91 8.48
Capital adequacy ratio - Tier II 4.10 4.46
Bank of Maharashtra
Capital adequacy ratio 12.05 12.78
Capital adequacy ratio - Tier I 6.11 6.41
Capital adequacy ratio - Tier II 5.94 6.37
Capital Held by National Banks (2009 – 2010)
Canara Bank
Capital adequacy ratio 14.10 13.43
Capital adequacy ratio - Tier I 8.01 8.54
Capital adequacy ratio - Tier II 6.09 4.89
Central Bank of India
Capital adequacy ratio 13.12 12.23
Capital adequacy ratio - Tier I 6.97 6.83
Capital adequacy ratio - Tier II 6.15 5.40
Corporation Bank
Capital adequacy ratio 13.61 15.37
Capital adequacy ratio - Tier I 8.90 9.25
Capital adequacy ratio - Tier II 4.71 6.12
Capital Held by National Banks (2009 – 2010)
Dena Bank
Capital adequacy ratio 12.07 12.77
Capital adequacy ratio - Tier I 6.76 8.16
Capital adequacy ratio - Tier II 5.31 4.61
Indian Bank
Capital adequacy ratio 13.98 12.71
Capital adequacy ratio - Tier I 11.88 11.13
Capital adequacy ratio - Tier II 2.10 1.58
Indian Overseas Bank
Capital adequacy ratio 13.20 14.78
Capital adequacy ratio - Tier I 7.88 8.67
Capital adequacy ratio - Tier II 5.32 6.11
Capital Held by National Banks (2009 – 2010)
Oriental Bank of Commerce
Capital adequacy ratio 12.98 12.54
Capital adequacy ratio - Tier I 9.10 9.28
Capital adequacy ratio - Tier II 3.88 3.26
Punjab and Sind Bank
Capital adequacy ratio 14.35 13.10
Capital adequacy ratio - Tier I 8.44 7.68
Capital adequacy ratio - Tier II 5.91 5.42
Punjab National Bank
Capital adequacy ratio 14.03 14.16
Capital adequacy ratio - Tier I 8.98 9.11
Capital adequacy ratio - Tier II 5.05 5.05
Capital Held by National Banks (2009 – 2010)
Syndicate Bank
Capital adequacy ratio 12.68 12.70
Capital adequacy ratio - Tier I 7.85 8.24
Capital adequacy ratio - Tier II 4.83 4.46
UCO Bank
Capital adequacy ratio 11.93 13.21
Capital adequacy ratio - Tier I 6.48 7.05
Capital adequacy ratio - Tier II 5.45 6.16
Union Bank of India
Capital adequacy ratio 13.27 12.51
Capital adequacy ratio - Tier I 8.19 7.91
Capital adequacy ratio - Tier II 5.08 4.60
Capital Held by National Banks (2009 – 2010)
United Bank of India
Capital adequacy ratio 13.28 12.80
Capital adequacy ratio - Tier I 7.56 8.16
Capital adequacy ratio - Tier II 5.72 4.64
Vijaya Bank
Capital adequacy ratio 13.15 12.50
Capital adequacy ratio - Tier I 7.74 7.69
Capital adequacy ratio - Tier II 5.41 4.81
Capital Held by National Banks (2009 – 2010)
Capital Held by Old Private Banks (2009 – 2010)
Bank of Rajasthan
Capital adequacy ratio 11.50 7.52
Capital adequacy ratio - Tier I 6.19 3.76
Capital adequacy ratio - Tier II 5.31 3.76
Catholic Syrian Bank
Capital adequacy ratio 12.29 10.81
Capital adequacy ratio - Tier I 8.81 8.07
Capital adequacy ratio - Tier II 3.48 2.74
City Union Bank
Capital adequacy ratio 12.69 13.46
Capital adequacy ratio - Tier I 11.48 12.41
Capital adequacy ratio - Tier II 1.21 1.05
Dhanlaxmi Bank
Capital adequacy ratio 15.38 12.99
Capital adequacy ratio - Tier I 13.75 8.80
Capital adequacy ratio - Tier II 1.63 4.19
Federal Bank
Capital adequacy ratio 20.22 18.36
Capital adequacy ratio - Tier I 18.42 16.92
Capital adequacy ratio - Tier II 1.80 1.44
Capital Held by Old Private Banks (2009 – 2010)
ING Vysya Bank
Capital adequacy ratio 11.65 14.91
Capital adequacy ratio - Tier I 6.89 10.11
Capital adequacy ratio - Tier II 4.76 4.80
Jammu & Kashmir Bank
Capital adequacy ratio 14.48 15.89
Capital adequacy ratio - Tier I 13.80 12.79
Capital adequacy ratio - Tier II 0.68 3.10
Karnataka Bank
Capital adequacy ratio 13.48 12.37
Capital adequacy ratio - Tier I 10.60 9.98
Capital adequacy ratio - Tier II 2.88 2.39
Capital Held by Old Private Banks (2009 – 2010)
Karur Vysya Bank
Capital adequacy ratio 14.92 14.49
Capital adequacy ratio - Tier I 14.40 12.88
Capital adequacy ratio - Tier II 0.52 1.61
Lakshmi Vilas Bank
Capital adequacy ratio 10.29 14.82
Capital adequacy ratio - Tier I 8.81 12.01
Capital adequacy ratio - Tier II 1.48 2.81
Nainital Bank
Capital adequacy ratio 13.10 15.68
Capital adequacy ratio - Tier I 11.85 14.38
Capital adequacy ratio - Tier II 1.25 1.30
Capital Held by Old Private Banks (2009 – 2010)
Ratnakar Bank
Capital adequacy ratio 42.30 34.07
Capital adequacy ratio - Tier I 41.69 33.53
Capital adequacy ratio - Tier II 0.61 0.54
SBI Comm. & Intl. Bank
Capital adequacy ratio 21.24 27.31
Capital adequacy ratio - Tier I 21.49 26.60
Capital adequacy ratio - Tier II -0.25 0.71
South Indian Bank
Capital adequacy ratio 14.76 15.39
Capital adequacy ratio - Tier I 13.22 12.42
Capital adequacy ratio - Tier II 1.54 2.97
Capital Held by Old Private Banks (2009 – 2010)
Tamilnad Mercantile Bank
Capital adequacy ratio 16.05 15.54
Capital adequacy ratio - Tier I 15.33 14.86
Capital adequacy ratio - Tier II 0.72 0.68
Capital Held by Old Private Banks (2009 – 2010)
Capital Held by Private Sector Banks (2009 – 2010)
Axis Bank
Capital adequacy ratio 13.69 15.80
Capital adequacy ratio - Tier I 9.26 11.18
Capital adequacy ratio - Tier II 4.43 4.62
Development Credit Bank
Capital adequacy ratio 13.30 14.85
Capital adequacy ratio - Tier I 11.50 11.93
Capital adequacy ratio - Tier II 1.80 2.92
HDFC Bank
Capital adequacy ratio 15.69 17.44
Capital adequacy ratio - Tier I 10.58 13.26
Capital adequacy ratio - Tier II 5.11 4.18
ICICI Bank
Capital adequacy ratio 15.53 19.41
Capital adequacy ratio - Tier I 11.84 13.96
Capital adequacy ratio - Tier II 3.69 5.45
IndusInd Bank
Capital adequacy ratio 12.55 15.33
Capital adequacy ratio - Tier I 7.65 9.65
Capital adequacy ratio - Tier II 4.90 5.68
Capital Held by Private Sector Banks (2009 – 2010)
Kotak Mahindra Bank
Capital adequacy ratio 20.01 18.35
Capital adequacy ratio - Tier I 16.13 15.42
Capital adequacy ratio - Tier II 3.88 2.93
Yes Bank
Capital adequacy ratio 16.60 20.60
Capital adequacy ratio - Tier I 9.50 12.90
Capital adequacy ratio - Tier II 7.10 7.70
Capital Held by Private Sector Banks (2009 – 2010)
Capital Held by Foreign Banks (2009 – 2010)
AB Bank
Capital adequacy ratio 50.67 30.01
Capital adequacy ratio - Tier I 49.97 29.61
Capital adequacy ratio - Tier II 0.70 0.40
Abu Dhabi Commercial Bank
Capital adequacy ratio 47.57 44.79
Capital adequacy ratio - Tier I 46.67 43.81
Capital adequacy ratio - Tier II 0.90 0.98
American Express Banking Corp
Capital adequacy ratio 21.34 19.10
Capital adequacy ratio - Tier I 20.09 17.85
Capital adequacy ratio - Tier II 1.25 1.25
Antwerp Diamond Bank
Capital adequacy ratio 26.79 33.72
Capital adequacy ratio - Tier I 26.44 33.46
Capital adequacy ratio - Tier II 0.35 0.26
Bank Internasional Indonesia
Capital adequacy ratio 501.34 531.80
Capital adequacy ratio - Tier I 501.34 531.80
Capital adequacy ratio - Tier II - -
Capital Held by Foreign Banks (2009 – 2010)
Bank of America
Capital adequacy ratio 12.73 15.49
Capital adequacy ratio - Tier I 11.23 14.97
Capital adequacy ratio - Tier II 1.50 0.52
Bank of Bahrain & Kuwait
Capital adequacy ratio 25.52 25.01
Capital adequacy ratio - Tier I 24.47 24.45
Capital adequacy ratio - Tier II 1.05 0.56
Bank of Ceylon
Capital adequacy ratio 45.18 50.85
Capital adequacy ratio - Tier I 44.11 49.49
Capital adequacy ratio - Tier II 1.07 1.36
Capital Held by Foreign Banks (2009 – 2010)
Bank of Nova Scotia
Capital adequacy ratio 12.70 13.15
Capital adequacy ratio - Tier I 9.75 11.03
Capital adequacy ratio - Tier II 2.95 2.12
Bank of Tokyo-Mitsubishi, UFJ
Capital adequacy ratio 29.51 68.16
Capital adequacy ratio - Tier I 28.80 67.40
Capital adequacy ratio - Tier II 0.71 0.76
Barclays Bank
Capital adequacy ratio 17.07 16.99
Capital adequacy ratio - Tier I 16.62 16.47
Capital adequacy ratio - Tier II 0.45 0.52
Capital Held by Foreign Banks (2009 – 2010)
BNP Paribas
Capital adequacy ratio 12.37 15.78
Capital adequacy ratio - Tier I 8.38 10.89
Capital adequacy ratio - Tier II 3.99 4.89
Chinatrust Commercial Bank
Capital adequacy ratio 45.40 31.12
Capital adequacy ratio - Tier I 44.75 30.70
Capital adequacy ratio - Tier II 0.65 0.42
Citibank
Capital adequacy ratio 13.23 18.14
Capital adequacy ratio - Tier I 12.42 17.27
Capital adequacy ratio - Tier II 0.81 0.87
Capital Held by Foreign Banks (2009 – 2010)
Credit Agricole Bank
Capital adequacy ratio 13.20 19.50
Capital adequacy ratio - Tier I 9.80 14.70
Capital adequacy ratio - Tier II 3.40 4.80
DBS Bank
Capital adequacy ratio 15.70 16.96
Capital adequacy ratio - Tier I 10.27 11.14
Capital adequacy ratio - Tier II 5.43 5.82
Deutsche Bank
Capital adequacy ratio 15.25 16.45
Capital adequacy ratio - Tier I 14.62 15.77
Capital adequacy ratio - Tier II 0.88 0.79
Capital Held by Foreign Banks (2009 – 2010)
FirstRand Bank
Capital adequacy ratio 74.73
Capital adequacy ratio - Tier I 74.69
Capital adequacy ratio - Tier II 0.04
HSBC
Capital adequacy ratio 15.31 18.03
Capital adequacy ratio - Tier I 14.12 16.63
Capital adequacy ratio - Tier II 1.19 1.40
J.P.Morgan Chase Bank
Capital adequacy ratio 15.90 23.63
Capital adequacy ratio - Tier I 15.38 22.92
Capital adequacy ratio - Tier II 0.52 0.71
Capital Held by Foreign Banks (2009 – 2010)
JSC VTB Bank
Capital adequacy ratio 317.51 225.93
Capital adequacy ratio - Tier I 317.51 225.93
Capital adequacy ratio - Tier II
Krung Thai Bank
Capital adequacy ratio 81.86 61.02
Capital adequacy ratio - Tier I 80.61 59.77
Capital adequacy ratio - Tier II 1.25 1.25
Mashreqbank
Capital adequacy ratio 76.80 78.21
Capital adequacy ratio - Tier I 75.55 76.96
Capital adequacy ratio - Tier II 1.25 1.25
Capital Held by Foreign Banks (2009 – 2010)
Mizuho Corporate Bank
Capital adequacy ratio 37.58 38.98
Capital adequacy ratio - Tier I 37.29 38.60
Capital adequacy ratio - Tier II 0.29 0.38
Oman International Bank
Capital adequacy ratio 25.17 41.08
Capital adequacy ratio - Tier I 23.25 39.83
Capital adequacy ratio - Tier II 1.92 1.25
Royal Bank of Scotland
Capital adequacy ratio 12.66 12.50
Capital adequacy ratio - Tier I 7.43 7.94
Capital adequacy ratio - Tier II 5.23 4.56
Capital Held by Foreign Banks (2009 – 2010)
Shinhan Bank
Capital adequacy ratio 36.80 40.85
Capital adequacy ratio - Tier I 36.35 39.89
Capital adequacy ratio - Tier II 0.45 0.96
Societe Generale
Capital adequacy ratio 22.47 22.77
Capital adequacy ratio - Tier I 22.08 21.96
Capital adequacy ratio - Tier II 0.39 0.81
Sonali Bank
Capital adequacy ratio 20.31 20.03
Capital adequacy ratio - Tier I 20.10 19.81
Capital adequacy ratio - Tier II 0.21 0.22
Capital Held by Foreign Banks (2009 – 2010)
Standard Chartered Bank
Capital adequacy ratio 11.56 12.41
Capital adequacy ratio - Tier I 7.99 8.94
Capital adequacy ratio - Tier II 3.57 3.47
State Bank of Mauritius
Capital adequacy ratio 38.01 34.40
Capital adequacy ratio - Tier I 35.52 31.91
Capital adequacy ratio - Tier II 2.49 2.49
UBS AG
Capital adequacy ratio 229.37 157.86
Capital adequacy ratio - Tier I 229.37 157.83
Capital adequacy ratio - Tier II 0.03
Capital Held by Foreign Banks (2009 – 2010)
Implementation of Basel II
• RBI announced in May 2004 that banks in India should
examine the options available under Basel II for revised
capital adequacy framework.
• In February 2005, RBI issued the first draft guidelines on
Basel II implementations in which an initial target date for
Basel II compliance was set for March 2007 for all commercial
banks, excluding Local Area Banks (LABs) and Regional
Rural Banks (RRBs).
• Deadline postponed to March 2008 for internationally active
banks and March 2009 for domestic commercial banks.
Implementation of Basel II
• RBI guidelines on Basel II implementation were released
on April 27, 2007.
• Banks in India will initially adopt standardized approach
for credit risk and basic indicator approach for
operational risk.
• After adequate skills are developed, both by banks and
RBI, some banks may be allowed to migrate towards
more sophisticated approaches.
Implementation of Basel II
•Indian banks will be required to maintain a minimum
CRAR of 9 per cent on an ongoing basis.
•Banks are encouraged to achieve a Tier I CRAR of at least
6 per cent by March 2010.
Basel II Issues and Challenges
• Linking credit rating to regulatory capital standards may
have severe macro-economic implications.
• As the sovereign ratings of developing and emerging
countries are not as high as the industrialized and the
high income countries, this will have an unfavourable
effect on the credit flows to developing and emerging
economies.
Basel II Issues and Challenges
• RBI’s scheme provides much less risk weights to exposures to scheduled
commercial banks than exposures to other banks/financial institutions.
• Extensive data requirement
– Implementation of Basel II, particularly the advanced approaches like the
IRB for credit risk and AMA for operational risk would require a huge
amount of data for model building and validation.
– A large number of banks in India lack reliable historical data due to late
computerization.
– Data on losses due to operational risk are currently non-existent.
– Lack of good quality historical data on credit, market and operational
risks may make migration towards the more advanced approaches of risk
management slow.
• Implementation cost:
– Basel II will lead to increased level of capital requirements.
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