General Awareness for Bank Exams-October 2012

RBI plans to restructure SLR to meet Basel-III norms

According to media reports, the Reserve Bank of India said that it may restructure the statutory liquidity ratio (SLR) to compute liquidity under the Basel-III regulatory norms. The move is aimed at preventing a recurrence of 2008 like financial crisis. CARE Research estimates domestic banks will be required to raise equity in the range of $40-$50bn over the next six years to meet BASEL-III guidelines. Banks ROE is projected to fall by 80-100bps for every 1% increase in core equity ratio, if other things remain constant. Given that most PSU banks core equity ratio is 6%-9%, CARE believes their ROE is expected to remain under pressure in the range of 100-200bps due to higher capital requirement. However, banks could increase or decrease their lending/ deposit rate by 15-25 bps, increase fee income or bring in cost efficiency to protect their ROE to fall from the current levels.

Terms you should understand

1. Statutory Liquidity Ratio 

SLR refers to the amount that the banks require to maintain in the form of cash, or gold or govt. approved securities(bonds and shares) before providing credit to the customers. The maximum limit of SLR is 40% and minimum limit of SLR is 23%.In India, RBI determines the percentage of Statutory Liquidity Ratio. If any Indian Bank fails to maintain the required level of Statutory Liquidity Ratio, then it becomes liable to pay penalty to RBI. 


Basel III is a global regulatory standard on bank capital adequacy, market liquidity risk and stress testing agreed upon by the members of the Basel Committee on Banking Supervision in 2010-11. Basel III strengthens bank capital requirements and introduces new regulatory requirements on bank liquidity and bank leverage. It is the third installment of the Basel Accords ( after Basel I and Basel II), and was developed in response to the deficiencies in financial regulation revealed by the 2008 financial crisis. 

3. ROE 

The amount of net income returned as a percentage of shareholders equity. Return on equity is a profitability measure which reveals how much profit a company generates with the money shareholders have invested. ROE is expressed as a percentage and calculated as: Return on Equity = Net Income/Shareholder's Equity