Capital Fund

Sher Jahan Khan

The capital fund constitutes one of the sources of funds for the commercial banks. It represents owned resources, and includes the share capital subscribed by its shareholders as well as reserve built up by the banks by ploughing back a part of its business earnings.

Funtions Of Capital Funds In Commercial Banks

Bank Capital acts as loss absorber. Bank Capital supplies working tools of banks. Bank Capital acts as source of loan funds.

Genesis Of Adequacy Of Capital Fund

To bring about solidarity, scope and the ultimate strength of the bank. To cover the normal hazards inherent in its operations. To cover the costs of expansion. To finance growing industry and trade.

Standards of measuring capital adequacy

Ratio of paid-up capital to reserve Capital - Deposit ratio Risk - Assets ratio Adjusted Risk Assets ratio

Capital Adequacy Norms In Indian Commercial Banks

The balance sheet assets, non-funded items and other off balance sheet exposures are assigned weight according to the prescribed risk. Capital has been divided into two tiers

Tier 1 Tier 2

Capital Adequacy Norms In Indian Commercial Banks

Tier 1 capital means

Paid up capital Statutory reserves Other disclosed free reserves Capital reserves Equity investment

Capital Adequacy Norms In Indian Commercial Banks

Tier 2 capital means

Undisclosed reserves Revaluation of reserves General provisions and loss reserves Hybrid debt capital instruments

Capital Adequacy Norms In Indian Commercial Banks

For those banks having branches abroad, the risk weighted assets ratio of 8% was to be achieved as early as possible and in any case by 31st March, 1995. Other banks were to achieve a capital adequacy norm of 8% by 31st March, 1996 Foreign banks were to achieve the norm of 8% by 31st March, 1993

Weights of Funded Assets

Assets Weight 0

Cash, balance with RBI, balances with other banks, money at call and short-notice and investment in government and other trustee securities
Claims on commercial banks, such as certificate of deposits Other investments Investments in bonds issued by banks of financial institutions for Tier 2 capital Loans guaranteed by govt. of India, loans to staff Loans guaranteed by state government Others Other assets

20 100 20 0 100 100 100

Weights of Non-Funded Items

Assets Conversion factor for LC Weight 20

Acceptances and endorsements

100

Direct credit substitutes of financial guarantees

Sales and repurchase agreements where the credit risk remains with the banks

100
100

Forward asset purchase, forward deposits and partly paid up shares

Foreign exchange contracts original maturity of 14 days or less

100
20

Capital Adequacy Ratio Of Public Sector Indian Commercial Banks

Name of the Bank Allahabad bank Andhra bank Bank of Baroda Bank of India Canara bank Indian overseas bank 2009-2010 11.51 13.36 12.10 10.57 9.64 9.15 10.31 11.49

Punjab national bank State bank of India

Capital Adequacy Ratio Of Private Sector Indian Commercial Banks

Name of the Bank Jammu and Kashmir bank ltd HDFC Bank ltd IDBI Bank Ltd ICICI 2009-2010 24.48 11.86 11.26 11.06 12.01 15.56

Axis Bank
IndusInd Bank Ltd Bank of Rajasthan Karur Vysya bank

10.68
15.34

Thank You For Your kind attention