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Banks need $65-bn capital to meet Basel III norms: Fitch

State-owned banks accounting for 95% of estimated shortage have limited options to raise the capital

Press Trust of India  |  New Delhi 

Basel III
Centre is committed to investing only another $3 billion in fresh equity for 21 public sector banks

will require about $65 billion in additional capital, lower than estimated earlier, to meet the III capital adequacy norms by March 2019 and push loan growth, said today.

Weak capital positions have a major negative influence on the banks' viability ratings which will come under more pressure if the problem is not addressed, it added.

"are likely to require around $65 billion of additional capital to meet new III capital standards that will be fully implemented by the financial year ending March 2019," Fitch said.

This is lower than the US-based credit rating agency's previous estimate of $90 billion, largely as a result of asset rationalisation and weaker-than-expected loan growth.

State-owned - which account for 95 per cent of the estimated shortage - have limited options to raise the capital they still require, it said.

"Prospects for internal capital generation are weak and low investor confidence impedes access to the equity capital market," Fitch said, adding that they are likely to be dependent on the state to meet core

The government is committed to investing only another $3 billion in fresh equity for 21 public sector (PSBs) over the current and the next fiscal, having already provided most of the originally budgeted $11 billion.

"Fitch believes the government will have to pump in more than double, even on a bare minimum basis, if it is to raise loan growth, address weak provision cover, and aid in effective NPL resolution," it said.

The gross non-performing loan (NPL) ratio reached 9.7 per cent in 2016-17, up from 7.8 per cent in 2015-16.

The process being led by the Reserve Bank could potentially release capital if recovery rates are as high as and the government are hoping for.

There are 12 currently going through resolution, representing 25 per cent of total system NPLs, and the has recently released a list of 50 more accounts that have been directed to resolve within three months or push into the insolvency process.

"State are unlikely to be freed from their current gridlock unless is accompanied by additional capital," Fitch said.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Wed, September 13 2017. 01:03 IST
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