Skip to main content

RBI allows easier capital recognition norms for banks

The Reserve Bank of India delivered on its promise of easier capital recognition norms for banks, including revaluation of real estate, which may release an equivalent of as much as Rs 40,000 crore that could be counted as equity capital.

The central bank also allowed banks to recognise some of their foreign currency reserves in their overseas operations and liberalised the treatment of deferred tax liabilities. "On a number of dimensions, we have been stricter than Basel norms,'' RBI Governor Raghuram Rajan had said.

"We are looking if there is a possibility that while still remaining conservative, we can allow banks a little more room to use these. For example, you may have real estate assets that we allow only as a fraction of their value to count as capital."

RBI's permission to recognise some of the assets of banks, which were till now not permitted, comes at a time when they are struggling to meet capital adequacy norms due to soaring provisions for bad loans.

The central bank forced them to declare more loans as bad and provide for their losses, eating into their capital, as it wants to clean up the system by March 2017.

Foreign currency reserves after translating financial statements of a bank's foreign operations to another reporting currency have also been allowed to be considered as Tier I at 25% of the value.

RBI has also allowed deferred tax assets up to 10% of a bank's Tier I capital to be recognised as core capital freeing up further money for banks. Unlike many developed nations and even private sector lenders, state-run banks own a lot of properties - be it their branch offices, or guest houses across the country - as they looked to cap their rental expenses. And many of the banks hold them at their book value, in some cases a multi-storey building being valued at Rs 1, the they bought in the 60s and 70s.

"As the value of the real estate goes up, banks will also create a capital buffer on the liabilities side,'' said Abhishek Bhattacharya, associate director at India Ratings.

"Some banks like Canara, Indian Bank, Bank of India and Bank of Baroda have already created a reserve for real estate. These banks will benefit. While some large ones like SBI and PNB have not, and they will have to create reserves to benefit from this. Our rough estimates are that banks will benefit 5-6% of their core Tier I."

This could also be a boon for banks which were disappointed with the Rs 25,000 crore of capital that the government provided from its finances for this fiscal.

The Economic Times, New Delhi, 02 March 2016

Comments

Popular posts from this blog

New income tax slab and rates for new tax regime FY 2023-24 (AY 2024-25) announced in Budget 2023

  Basic exemption limit has been hiked to Rs.3 lakh from Rs 2.5 currently under the new income tax regime in Budget 2023. Further, the income tax slabs in the new tax regime has been changed. According to the announcement, 5 income tax slabs will be there in FY 2023-24, from 6 income tax slabs currently. A rebate under Section 87A has been enhanced under the new tax regime; from the current income level of Rs.5 lakh to Rs.7 lakh. Thus, individuals opting for the new income tax regime and having an income up to Rs.7 lakh will not pay any taxes   The income tax slabs under the new income tax regime will now be as follows: Rs 0 to Rs 3 lakh - 0% tax rate Rs 3 lakh to 6 lakh - 5% Rs 6 lakh to 9 lakh - 10% Rs 9 lakh to Rs 12 lakh - 15% Rs 12 lakh to Rs 15 lakh - 20% Above Rs 15 lakh - 30%   The revised Income tax slabs under new tax regime for FY 2023-24 (AY 2024-25)   Income tax slabs under new tax regime Income tax rates under new tax regime O to Rs 3 lakh 0 Rs 3 lakh to Rs 6 lakh 5% Rs 6

Jaitley plans to cut MSME tax rate to 25%

Income tax for companies with annual turnover up to ?50 crore has been reduced to 25% from 30% in order to make Micro, Small and Medium Enterprises (MSME) companies more viable and also to encourage firms to migrate to a company format. This move will benefit 96% or 6.67 lakh of the 6.94 lakh companies filing returns of lower taxation and make MSME sector more competitive as compared with large companies. However, bigger firms have shown their disappointment since the proposal for reducing tax rates was to make Indian firms competitive globally and it is the large firms that are competing globally. The Finance Minister foregone revenue estimate of Rs 7,200 crore per annum for this for this measure. Besides, the Finance Minister refrained from removing or reducing Minimum Alternate Tax (MAT), a popular demand from India Inc., but provided a higher period of 15 years for carry forward of future credit claims, instead of the existing 10-year period. “It is not practical to rem

Don't forget to verify your income tax return in August: Here's the process

  An ITR return needs to be verified within 120 days of filing of tax return. Now that you have filed your income tax return, remember to verify it because your return filing process is not complete unless you do so. The CBDT has reduced the time limit of ITR verification to 30 days (from 120 days) from the date of return submission. The new rule is applicable for the returns filed online on or after 1st August 2022. E-verification is the most convenient and instant method for verifying your ITR. However, if you prefer not to e-verify, you have the option to verify it by sending a physical copy of the ITR-V. Taxpayers who filed returns by July 31, 2023 but forget to verify their tax returns, will get the following email from the tax department, as per ClearTax. If your ITR is not verified within 30 days of e-filing, it will be considered invalid, and may be liable to pay a Late Fee. Aadhaar OTP | EVC through bank account | EVC through Demat account | Sending duly signed ITR-V through s