Dena Bank to meet Basel-II by Mar 2008

Dena Bank, a small public sector bank, is working to meet the Basel II revised capital adequacy norms by March 2008, a year ahead of the requirement for banks that do not have an international presence.

Towards this goal, the bank is trying to ensure that its corporate clients and small and medium enterprises (SME) obtain a credit rating so it can allocate capital more efficiently.

At present, all rated exposures attract a 100 per cent risk weight. This means that for every Rs 100 exposure, banks have to provide a minimum capital of Rs 9.

Under Basel II norms, the risk weight would be based on ratings with AAA rating attracting just 20 per cent risk weight and all unrated exposures a 150 per cent risk weight.

The bank today signed a pact with credit rating agencies CARE and CRISIL to use their ratings to evaluate credit quality of existing as well as prospective clients. The ratings will help in an independent and objective assessment of credit.

"The credit ratings will help the bank in its Basel II preparations and will form part of its core strategies for efficient allocation of capital," Dena Bank Chairman and Managing Director, P L Gairola, said.

The release of capital is crucial for the public sector bank as it has practically no room to expand its equity capital base.

That's because the government holding in the bank is close to the floor of 51 per cent.

The capital adequacy ratio (CAR) of the bank was 11.9 per cent at the end of June 2007. The minimum CAR banks have to maintain is 9 per cent out, of which the minimum tier-I capital is required at 6 per cent.

Its tier-I capital at 6.44 per cent just meets the minimum required. The bank has headroom to raise additional capital of Rs 700 crore-Rs 800 crore through subordinated and hybrid capital.