A prolonged global liquidity crunch may affect the Indian banks' growth and capital expansion plans in 2007-08 and beyond. The rising cost of money may force banks to defer overseas capital raising plans, according to Fitch Ratings. | |
| Indian banks have shown about 30 per cent growth in credit for last three years. The credit demand from retail, industry and infrastructure projects is expected to remain strong in the future. |
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| This will mean banks need strong dose of capital infusion to fund business growth, meet basel II norms and unfunded pension liabilities. The situation of public sector banks is more challenging due to conditions for government to maintain at least 51 per cent stake in banking entity. |
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| Many banks including ICICI Bank, State Bank of India, HDFC Bank and UTI Bank have hit the global markets to raise capital - equity as well as hybrid capital. |
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| The global liquidity conditions have turned tight in recent weeks as fallout of sub-prime credit crisis in US. The financial markets have tuned risk averse. |
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| "The credit spreads have moved up by 50 basis points which is likely to increase the cost of hybrid tier I and II capital for Indian Banks' global paper," Fitch Ratings India director Ananda Bhoumik said. |
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| As a consequence, banks may either have to pay higher spread for their paper compared with what they paid earlier or defer the capital raising plans, he said. |
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| In case the deterioration in global liquidity continued, it could affect growth prospects. Banks unable to get adequate capital may trim the business growth plans, Fitch said. |
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