What changed
RBI has mandated that State and Central Co-operative Banks, previously outside the CRAR framework, must now disclose their CRAR as on March 31, 2008, and every year in 'Notes on Accounts' to their Balance Sheets. A detailed roadmap for achieving desired CRAR levels will follow. Banks must also submit an annual return on capital funds and risk assets ratio to the respective Regional Office of RPCD or NABARD.
What it means for you
This move signals RBI's intent to strengthen the financial stability of the co-operative banking sector by gradually aligning it with prudential norms. Banks will need to compute risk-weighted assets and capital funds as per the provided Memorandum of Instructions, which will impact their capital planning and reporting processes. Non-compliance could attract regulatory scrutiny, and banks must prepare for eventual full CRAR compliance.
What you must do
- Compute CRAR as on March 31, 2008, using the Memorandum of Instructions, and disclose it in the Balance Sheet 'Notes on Accounts'.
- Submit the annual return in Annex 2 format to your Regional Office of RPCD or NABARD as soon as annual accounts are finalized.
- Ensure the return is signed by two officials authorized to sign statutory returns submitted to RBI.
- Bring the circular to the notice of your bank's Board of Directors.
- Acknowledge receipt to the concerned Regional Office.
Who it affects
State Co-operative Banks, Central Co-operative Banks, NABARD, RBI's Rural Planning and Credit Department (RPCD)
What is the deadline for first CRAR disclosure?
The first disclosure must be as on March 31, 2008, in the Balance Sheet 'Notes on Accounts'. The annual return in Annex 2 format should be submitted to the Regional Office of RPCD or NABARD as soon as the annual accounts are finalized.
What happens if a bank does not meet the desired CRAR level?
The circular does not specify immediate penalties. It states that a roadmap for achieving the desired CRAR norms will be communicated later. Banks should start preparing for eventual compliance.
Which items are deducted from Tier I Capital?
Deductions include intangible assets, current year and brought forward losses, deficit in NPA provisions, income wrongly recognized on NPAs, and provisions required for liabilities devolved on the bank.