CAR rise keeps Indian pvt sector banks risk-free

Even as reputed banks tumbling and shutting shop across the world, capital adequacy ratio (CAR) could put to rest any doubt about the health of private sector banks in India. Not only many banks in the country have seen their capital adequacy ratio growing in FY08, private sector banks? CAR grew more than that of the public sector banks (PSB). A study of CAR of 18 private banks and 27 PSBs during 2007-08 and 2006-07 by FE shows the average CAR of private banks rose from 13.32% to 15.32%.

On the other hand, between 2006-07 and 2007-08, the average CAR of 27 PSBs declined from 12.25% to 12.04%. However, even this remains much more than the 9% limit prescribed by the RBI and 8% set by the Basel recommendations.

Indian banks have been consciously been maintaining a high CAR and this has now helped them create confidence in the market place, says an analyst with an overseas investor. And with a statutory liquidity ratio of 25%, Indian banks are seen to be very safe. They might have missed out on the tremendous growth opportunity to expand by keeping capital thin, but today this looks to have been a sounder strategy.

The highest increase in CAR was seen in the case of Federal Bank, where it rose to 22.46% from 13.43%. Axis Bank had a CAR of 11.57% in 2006-07 which rose to 13.73% in 2007-08. The CAR of Kotak Mahindra Bank increased from 13.46% as on March 31, 2007 to 18.65% as on March 31, 2008. Even India?s largest private sector bank, ICICI Bank, saw its CAR increased from 11.69% to 13.97% during the study period.

However, Nearly 63% of PSBs in the sample saw their CAR declining during 2007-08. Significant decline in CAR was noticed in the case of Bank Of Maharashtra (12.06% in 2006-07 to 10.26% in 2007-08), IDBI Bank (13.73% to 11.95%) and UCO Bank (11.56% to 10.09%).

In 2006-07, IDBI Bank had a highest CAR of 13.73% followed by Canara Bank, with 13.50%. In 2007-08, the highest ratio was observed in the case of SB Of B&J (13.50%) followed by SBI ( 13.47%). SBI, India?s PSB registered an increase in CAR from 12.34% to 13.47% during 2007-08.