Tier-Iii Capital For Banks Mooted

The Indian Banks Association (IBA), in its representation to the Narasimham Committee, has mooted the concept of tier-III capital for contingent liabilities, different capital adequacy ratios for different banks, constitution of an asset reconstruction fund (ARF) and turnaround strategies for loss-making banks.

While IBA has favoured mergers in the banking sector, it is opposed to mergers being thrust upon banks. Instead, it should be left to banks whether they want to acquire another bank, is the stand of the public sector banks.

Select bankers met the members of the Narasimham Commit-tee yesterday. The idea of tier-III capital to provide for contingent liabilities was mooted at the meeting. The issue of creating a large public sector bank matching the size of SBI was also discussed.

 

The IBA suggested that the Reserve Bank of India should not opt for uniform higher capital adequacy norms. Instead of the policy of one size fits all, the measures should be bank-specific. One suggestion was that weak banks should be restricted from lending. It was pointed out that the risk profiles of different banks are different and the capital adequacy ratio should essentially reflect that. It was also argued that there is no use forcing good banks to maintain high capital adequacy ratios as this would only result in inefficient use of capital.

It is understood that IBA has written to the committee on four issues, namely accounting and prudential norms, organisational structure, legal reforms and technological upgradation. The issues pertaining to accounting norms that were discussed include mark-to-marketing investments and classification of assets. Banks want the legal structure overhauled to ensure that a security is truly enforceable.

Banks have advocated the creation of an ARF and indicated their willingness to fund it. The fund would essentially take over the bad debts from the banks books at a discounted price and try to recover them.