Allaying concerns over banking sector health in the wake of Yes Bank fiasco, Chief Economic Adviser Krishnamurthy Subramanian on Sunday said Indian banks are well capitalised and there is no reason to worry.
He further said that it is a wrong method to assess a lender's health based on the ratio of deposit to m-cap (market capitalisation).
"What I want to emphatically state 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," Subramanian said while addressing a select mediapersons at his office here.
After what all unfolded about the crisis-hit Yes Bank recently, top government functionaries including Finance Minister Sitharaman, RBI Governor Shaktikanta Das and the chief economic advisor have been trying to assuage panicked investors.
The CEA said that no banking sector experts or regulators use deposit/m-cap ratio as a measure to gauge resilience of banks rather it is the capital to risk weighted assets ratio (CRAR) and other such metrics that can rightly gauge the health of banks.
"What banking sector experts and regulators use is what is called the CRAR. It is important to keep this in mind that the international norms for CRAR is 8 per cent and Indian banks on an average have a CRAR of 14.3 per cent.
"So, 8 per cent is the mandated minimum norm and our banks on the average have 14.3 per cent (CRAR). Now 14.3 per cent versus 8 per cent almost translates into 80 per cent greater capital than the international norms," he said.
He further said that the Reserve Bank of India (RBI) mandates the Indian banks to keep CRAR at 9 per cent.
"Even compared to that our banks have 60 per cent more capital. So this is something that is very important."
"But the State Bank of India is as safe as the any other bank in the world. In fact it is the only Indian bank to be the part of the top 100 banks internationally."
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