RBI makes amendments to treatment of certain balance sheet items of banks
Q. RBI has made amendments to the treatment of certain balance sheet items of banks for what purpose?- Published on 02 Mar 16a. Boosting their regulatory capital
b. Aligning with the Internationally adopted Basel III capital standards
c. Neither a nor b
d. Both a and b
ANSWER: Both a and b
RBI has made amendments to the treatment of specific balance sheet items of banks boosting regulatory capital and aligning the same with globally adopted Basel III capital standards. According to the new riles, banks will be permitted to recognise part of real estate assets, foreign currency assets and deferred tax assets as capital with suitable hair cuts. This is in light of regulatory forcing banks to associate more stressed assets as NPAs leading to enhanced capital requirements. Existing capital adequacy guidelines were reviewed for aligning the definition of regulatory capital with internationally adopted Basel III capital standards issued by the Basel Committee on Banking Supervision. The amendments to be carried out with immediate effect include revaluation reserves due to change in carrying amount of bank property will be considered as Tier 1 instead of Tier 2 capital and continue to be reckoned at 55% discount. Foreign currency translation reserves due to translation of financial statements of the bank’s foreign operations to reporting currency may be considered as Tier 1 capital and reckoned at 25% discount. Foreign exchange translation reserves will suit banks with operations which have foreign operations such as SBI and BoI.
