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RBI eases capital recognition norms

The Reserve Bank of India has made some amendments to the treatment of certain balance sheet items for the purposes of determining banks’ regulatory capital. The review was carried out with a view to further aligning the definition of regulatory capital with the internationally adopted Basel III capital standards. The amendments to recognise more balance sheet items as common equity tier-I capital which will help unlock Rs 35,000 crore to Rs 40,000 crore for state-run lenders impacted by asset quality troubles. According to RBI, the changes include recognition of revaluation reserves arising from change in the carrying amount of a bank’s property consequent upon its revaluation as common equity tier-I capital instead of the earlier tier 2 capital. These would continue to be reckoned at a discount of 55 per cent. RBI said the banks can recognise foreign currency translation reserves arising due to translation of financial statements of a bank’s foreign operations to the reporting currency as CET1 capital. These will also be reckoned at a discount of 25%. Deferred tax assets arising due to timing differences may be recognised as CET1 capital up to 10% of a bank’s CET1 capital, it said.

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