The Commercial Banking Act of 1995 also stipulated that capital adequacy ratio (CAR) of commercial banks be no less than 8 percent. However, for an extended period of time, no regulatory actions were ever taken against banks with inadequate capital. Concession was even allowed in the calculation of CAR. Compromise was made in the loan asset classification and bad debt provisioning rules in 1997.
That is to say, the disincentive to lend funds in the market was largely caused by the ample liquidity provision by the Bank.