ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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From 50 Years Ago: More Capital For Banks.

Weekly Note from Volume XIV, No 1, January 6, 1962.

In the directive (or, is it a circular?) addressed to all the Indian scheduled banks, the Gover-nor of the Reserve Bank has put down the terms of the compromise reached between the Reserve Bank and the scheduled banks in regard to the measures to be adopted by the latter for strengthening their capital struc-ture. The ratio of paid-up capital and re-serves of the scheduled banks which had de-clined from 9 per cent in 1950 to 5 per cent in 1960 will have to be gradually raised to 6 per cent, and not to the higher figure which the Governor had suggested earlier. Those banks which are in a position to do so have been asked to raise fresh capital in the market and if the new capital raised is not adequate, they, too, will have to transfer a minimum of 20 per cent of their declared profits to their reserves until the 6 per cent ratio is reached. This is the general directive and it applies to all banks whether their reserves have come up to their paid-up capital or not. The mini-mum that the banks have to do is to transfer 20 per cent of their declared profits to re-serves until the ratio has been reached; there is naturally no upper limit to such transfer. …the directive is explicit on the point that while the published reserves are to be strengthened, it should not be at the cost of secret reserves…

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