From ET Realty
MUMBAI: Raghuram Rajan’s move to release regulatory capital for banks has received a positive response from the market. Stocks of public sector banks inched up despite investors being disappointed over the central bank’s decision to hold policy rates.
In his policy statement, the RBI governor Raghuram Rajan said that the central bank’s norms were stricter than global norms issued under Basel on recognising assets that have increased in value. “We are looking at allowing banks to use a part of this as capital,” said Rajan. In response to what kind of assets could be revalued, Rajan said that many banks hold real estate where the value is not recognised anywhere and this could one of the items that could be revalued.
Almost all public sector banks hold real estate with market value running into thousands of crore. But conservative accounting norms prevent this value from being recognised in the balance sheet of banks.
Although the Bankex – which represents a broad category of bank stocks – was flat thanks to a decline in share prices of private banks, several psu banks showed gains. Bank of Baroda was the top gainer with a 2% gain at Rs 124. Other gainers were Punjab National Bank and State Bank of India which mildly recovered by 1.28% and 0.5% respectively. Federal Bank, Yes Bank, Axis Bank and HDFC Bank were among the private banks that were in the green. ICICI Bank continued to be a drag on the bank index with the share price declining by 1%.
In the past banks were allowed to revalue their real estate assets to beef up their capital adequacy. But the revaluation reserves could be utilized only toward tier II capital and not as tier I capital which is at the core of the new capital adequacy norms under Basel III.
Rajan also sought to alleviate some of the concerns of market on the bad loans stating that the market fears of 17% stressed assets were on the higher side. He said that loans described as stressed were not bad loans and many could be brought back on track through change of management.