Low cost of funds and low credit growth have led to high Capital adequacy Ratios (CAR) for banks. At least four banks- Federal bank, Corporation bank, Yes bank and ICICI bank -have CAR levels twice as much of the prescribed minimum levels of 9 percent. HDFC bank with a CAR of 15.7 percent at the end of second quarter is expected to soon join these banks when it exercises its warrants next month.

Federal Bank raised Rs 2100 crore through rights issue in early 2008, country's second largest lender, ICICI raised Rs. 20,000 crore through a follow-on issue in 2007. Axis bank has raised funds amounting to Rs. 4,000 crore from institutional investors.

Among the public sector banks, Corporation bank has the highest CAR. It has raised Rs. 1500 crore from bonds. A senior bank official said, "Re-rating by external agencies pushed up our CAR by 84 basis points. We also took advantage of lower rates to raise funds. But as we grow our loan book, the ratio will decrease to 15 per cent by March."

ING Vysya Bank, reported a CAR of 14.48 per cent at the end of the second quarter. It had raised capital worth Rs 415 crore in September.

As per the Reserve bank's regulation banks have to maintain a minimum CAR of 9 percent. The average CAR for Indian Banks was 13.2 percent in 2008-09, as against 13 percent a year ago. The apex bank says that credit pick up would be able to manage some of the idle capital.

A banking analyst said, "Excess capital, if not optimally utilised, may lead to a depressed return ratio. Banks with lower returns on assets and equity tend to get lower price to book multiples and hence do not find much interest among investors"