The progress and growth of Indian banking is in line with the twin objectives of financial stability and growth. Banking in India has increased its size by capitalizing on all the business opportunities available. The capital adequacy ratio of Indian banks has increased and is now in a much better position in relation to other emerging market economies. The ratio is well in line with the proposed new Basel norms. Several banks raised capital and some more banks are on the way.

Meeting capital adequacy norms in the recent times gained importance with the deadline for the implementation of Basel II Accord approaching closer. The average Capital Adequacy Ratio (CAR) of Indian banks stood at 12.8% at March 31, 2005, much above the prescribed norms. In order to enhance capital adequacy ratio, seven banks, including ICICI Bank and Punjab National Bank, have raised capital in primary markets to the tune of Rs. 12,000 cr during the year 2005. It has been decided that banks which have maintained capital of at least 9% of the risk weighted assets for both credit risk and market risks of both `Held For Trade' (HFT) and `Available For Sale' (AFS) categories as on March 31, 2006, would be permitted to treat the entire balance in the Investment Fluctuation Reserve as tier-I capital. This will help banks to enhance their CAR. Reserve Bank of India (RBI) has given guidelines to have a minimum net worth of Rs. 300 cr for private banks.

New guidelines have been introduced in the Indian banking system to measure up to the international banking practices. The Indian Bankers Association (IBA) has come up with `Fair Practices Code' to improve corporate governance. Banks in India should now explicitly state their governance philosophy in their Annual Reports as part of `Notes on Accounts' to their balance sheets. Risk-based supervision was introduced in some selected banks, which resulted in a marked improvement in the area of disclosures. Guidelines have been issued to banks not to outsource core-banking functions.

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