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RBI relaxes norms of capital adequacy for foreign banks

10 Jul 2012 Evaluate

In accordance with the central bank norms, the Reserve Bank of India has relaxed the norms for foreign banks to help them meet capital adequacy requirement.

The RBI, in its notification, has urged banks to include some of the net overseas placements with head office or other overseas branches or other group entities to be calculated as Tier-I capital or equity capital. If this equity capital exceeds 10 per cent of the bank's minimum capital adequacy ratio requirement, the amount in excess of this limit would be deducted from the Tier I capital or equity capital. To ensure this the net overseas placement would be higher of the overseas placements as on date and the average daily outstanding over year to date.

The central bank’s notification also cited that the debit balances in the head office account due to placements with the overseas branches may happen as a part of normal banking business and complete avoidance of such exposures may not be practical and consistent with the principle of non-disruptive regulation.

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