Govt infusion in banks still short, say Icra & Fitch

Rating agencies Icra and Fitch have said the capital requirements of state-owned banks are much higher than the government’s Rs 22,915 crore equity infusion because internal generation will be limited by high credit costs.

Icra said public sector banks’ Tier-I capital requirements would be Rs 40,000-50,000 crore in 2016-17, higher than the government’s allocation of Rs 22,900 crore. This shortfall could continue to hurt loan growth in 2016-17.

Fitch said the government’s capital infusion was unlikely to address the weak profitability of these banks.

Indian banks will need $90-billion additional capital, most of it for public sector banks, to meet Basel III requirements by 2019.

Pressure on public sector bank credit profiles is likely to endure and more capital than the Rs 70,000-crore earmarked till 2018-19 will be needed from the government. Losses at public sector banks in the second half of 2015-16 were double the government's capital injection that year, and eroded the equivalent of nearly 15 per cent of their capital in March 2015. This caused loan books to contract at many public sector banks, which brought credit growth to below 10 per cent in 2015-16, the lowest in a decade, Fitch added.

According to the chief executive officer of a Mumbai-based public sector bank, meeting capital requirements under Basel III norms is now the overriding concern.

He added the government capital infusion was skewed towards banks that had reported big losses and bad loans, like Bank of India and Indian Overseas Bank. “What is the signal for those managing business prudently?" he asked.