New Delhi: Chief Economic Adviser (CEA) Krishnamurthy Subramanian on Sunday said that depositors needn’t worry as all banks are adequately capitalised, as doubts were raised on stability of Indian banking sector after the crisis at Yes Bank, which led to the central bank superseding the board.
“It is important to keep this in mind that the international norms for CRAR (capital to risk weighted assets ratio) is 8%. Our banks have way more capital, at 14.3%, which is about 80% greater (than globally mandated norms). Our banks on an average are very well capitalised. There is absolutely no reason to worry,” the CEA told Doordarshan on Sunday.
CRAR is a crucial metric that measures capital adequacy in terms of riskiness of loan given by the lender.
Subramanian’s comments come in the background of the crisis at the Yes Bank with banking regulator imposing a moratorium on the private sector lender for 30 days till 3 April and also capped withdrawals from the bank at ₹50,000 per account till further orders, as the central bank tries to stitch together a bailout plan for the troubled lender, which was once the country’s fourth largest by assets.
On Friday, the finance minister has asked the Reserve Bank of India (RBI) to submit a report on the irregularities at the cash-strapped Yes Bank. The minister also said that the banking regulator will finalize a restructuring scheme for the bank within a month.
On Sunday morning, the Enforcement Directorate (ED) arrested the crisis-ridden bank’s founder Rana Kapoor on money laundering charges.
Reiterating on the safety of deposits, Subramanian said that the government recently has increased the limit for the deposits that are insured on deposits from ₹1 lakh to ₹5 lakh.
“Together with the fact that our banks are well capitalised and the fact that the deposits are well taken care of, there is absolutely no reason for anyone to worry,” he told news agency PTI.
He further said that it is a wrong method to assess a lender’s health based on the ratio of deposit to market capitalisation.
“What I want to emphatically state is that the m-cap ratio is a totally incorrect metric for assessing the safety of the banks. No banking sector expert or banking regulator uses this measure,” he said.