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Mahesh

25/10/22 22:51 PM IST

RBI increases oversight on Dhanlaxmi Bank

In News 
  • Delay in capital raising has placed Dhanlaxmi Bank under the central bank’s tight monitoring. 
Criteria for placing under Monitoring 
  • Under the Banking regulations act 1949, RBI has the duty to inspect and regulate all commercial banks including Basel norms, CRR, SLR etc.
  • The capital-to-risk weighted assets ratio or capital adequacy ratio measures a bank’s financial stability by measuring its available capital as a percentage of its risk-weighted credit exposure.
  • Under the Basel norms, a bank must keep a minimum Capital to Risk Weighted Asset Ratio(CRAR) of 9% or higher.
  • As NPA increases→ asset quality decreases→RWA increase→ And so Bank would need to increase their CRAR to maintain the confidence of the market.
  • In Dhanalakshmi bank, NPA increased but CRAR decreased. Hence RBI took it under direct observation.
Basel Norms
  • These norms were set by the member countries of the Bank of International Settlements to ensure global financial stability.
  • Liquidity coverage ratio should be more than or equal to one.
  • It means a bank has enough high-quality liquid assets(cash, gold etc) to survive a high-stress scenario of cash outflow(the bank run) for at least 30 days or more.
Prompt Corrective Action framework
  • Under PCA, all commercial banks are monitored for asset quality and capital sufficiency.
  • Accordingly, they are classified into three risk categories(the higher the number higher the risk).
  • All commercial banks and Non-deposit taking NBFCs are covered under the PCA norms of RBI. NABARD sets PCA norms for Regional Rural banks.
  • Exit from PCA norms is possible only if no breach is detected in 4 consecutive quarterly audit statements.
Source- The Hindu 

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