"All banks belonging to SBI group now have a capital to risk-weighted assets ratio (CRAR) exceeding 10 per cent. Amongst other public sector banks, all banks have met the enhanced CRAR norm of nine per cent with the exception of Indian Bank", the RBI said.

Four of the 34 Indian private-sector banks had a CRAR below the prescribed norm of eight per cent in 1996-97. In 1999-2000, three of 32 such banks had a CRAR below the enhanced norms of nine per cent. All the 42 foreign banks operating in India, in 1999-2000, had a CRAR exceeding the 9 per cent norm. "As such, the capital position of banks operating in India is comfortable at present", the RBI said.

The position on asset quality front has also improved over the last four years. Three of the eight SBI group banks had non-performing assets (NPA) to net assets ratios exceeding 10 per cent in 1996-97. Their number increased to four in the following two years, but declined to only one in 1999-200. The number of nationalised banks having NPAs exceeding the 10 per cent also declined from six in 1996-97 to four in 1999-2000.

In the case of old private sector banks, this number increased from three to five percent over the same period, indicating some deterioration in their asset quality. In the case of foreign banks operating in India, the number of banks with NPAs exceeding the 10 per cent benchmark increased from three per cent in 1996-97 to 14 per cent in 1998-99, but declined to 11 in 1999-2000. None of the new Indian private sector banks have NPAs exceeding the 10 per cent. Along with reduction in NPAs, the provisioning and contingencies made against NPAs of all major bank groups, except foreign banks, have also declined.

In the case of financial institutions, with the exception of IFCI and IIBI, all FIs have CRAR exceeding 10 per cent. IFCI, IIBI and IDBI had net NPAs exceeding 10 per cent of net loans in 1999-2000. A significant deterioration in loan quality was observed in the case of IFCI in 1998-99.

Under non-banking financial companies (NBFCs), prudential norms (Reserve Bank) directions, issued in January 1998, NBFCs are required to achieve a minimum 12 per cent CRAR on or before March 31, 1999. Most of the companies had CRAR above the stipulated minimum.

In order to strengthen banking supervision, an independent board of financial supervision (BSF) under the aegis of the RBI was constituted in November 1994. The board is empowered to exercise integrated supervision over all credit institutions in the financial system including select FIs and NBFCs relating to credit management, prudential norms and treasury operations. A comprehensive rating system based on capital adequacy, asset quality, management, earnings, liquidity and systems (ACMELS) methodology has also been instituted for domestic banks.

As regards foreign banks, the rating system is based on capital adequacy, asset quality, compliance and systems (CACS). This has been supplemented by a technology-enabled quarterly off-site surveillance system.