Minimum capital requirement for commercial banks was raised five fold to Rs. 2.5 billion by the Monetary Board. Minimum capital requirement for commercial banks was raised five fold to Rs. 2.5 billion by the Monetary Board. Banks have till 2007 to meet the new capital targets but have to raise minimum capital to Rs. 1.5 billion by end 2006.
The Monetary Board says they decided to raise the amount of capital needed to create banks capable of withstanding internal and external shocks.
Promoters currently need to invest Rs. 500 million in capital to start a bank, but the new ruling will take the minimum requirement up to Rs. 2.5 billion in three years.
New applications for banking licenses will have to meet the new minimum capital requirement.
Monetary Board expects the enhanced capital will force much needed consolidation in the banking sector.
Analysts say many of the large banks won’t have problems meeting the targets in the next few years, but smaller ones might be forced to merge as high levels of capital are not economical without the business volumes to match.