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PSU banks need Rs 1.9 lakh cr additional capital by March 2019: S&P

Public sector banks will need substantial capital to make large haircuts on loans

Press Trust of India  |  New Delhi 

PSU banks need Rs 1.9 lakh cr additional capital by March 2019: S&P

will need at least Rs 1.9 lakh crore additional capital by March 2019 as the lack of it will restrict their ability to write down non-performing loans, Global Ratings said on Tuesday. 

"We estimate that Indian may need a minimum of about $29.6 billion (Rs 1.9 trillion) over the next two years," Global Ratings credit analyst Geeta Chugh said.

Public sector will need substantial capital to make large haircuts on loans to unviable stressed projects and to meet rising Basel III requirements, said.

"The lack of capital restricts the ability of India's public sector to write down non-performing loans to more accurate levels. Weak profitability and rising capital demands from Basel III implementation will also continue to pressure the capitalisation of many of these banks," Chugh said.

The US-based agency said will have to look for alternate sources to increase their capitalisation.

"India's public sector face three key challenges in tapping equity capital markets: low equity valuations, overcrowding in the market, and regulations. At the same time, they may find it hard to raise money via the issuance of additional Tier-1 capital instruments because the risk of default on these instruments is rising," Global Ratings credit analyst Deepali Seth-Chhabria said.

expects the government's commitment of support to remains in place.

"We think the polarisation of the market in favour of stronger will continue as clean up their balance sheets and the full requirements of Basel III kick in," it said.

Also, weak would continue to lose market share to the better-performing private sector and profitable PSU banks, and non-bank institutions or domestic debt capital markets, it said.

"We believe public sector with lower capitalisation and internal generation of capital could become takeover targets, resulting in consolidation in the banking sector over time," said.

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