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January 14, 2002
1525 IST
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RBI urges banks to raise more funds

The Reserve Bank of India on Monday said banks should raise capital in excess of the level prescribed by the central bank to tide over unexpected erosions in asset values.

G P Munniappan, deputy governor of the central bank, told bank economists at a seminar that banks should consider raising their capital adequacy ratio to 12 per cent from the current nine percent set by the central bank.

"This can provide well needed cushion for growth in risk weighted assets as well as provide for unexpected erosion in asset values," he said.

Earlier, RBI Governor Bimal Jalan told the gathering that global developments were starting to have wider implications for the country's banking system than before.

"The global context has implications for the banking system, both in terms of the financial outlook for its borrowing entities as well as the flow of funds," he said.

Munniapan told banks to start enforcing stricter bad loan norms as the RBI was likely to take punitive action against them if they failed to do so.

"The banks should go in for proactive measures towards improving financial fundamentals than wait for the supervisor's cease and desist orders to initiate such corrective steps," he said.

The central bank had tightened income recognition norms in its annual monetary and credit policy announced in April 2001.

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