Govt's Rs 70k-cr booty for PSBs inadequate: Fitch

Can't meet loan growth, Basel-III, buffer for NPA goals simultaneously

Rating agency Fitch on Thursday said the Government of India’s outlay of Rs 70,000 crore for infusing equity into public sector banks (PSBs) was insufficient to meet three goals — credit growth, Basel-III norms and buffer for stressed loans — all at one go.

PSBs carry a disproportionate share of the stressed assets. They have little choice but to look at strengthening balance sheets if they have to revive profitability, internal capital generation and equity valuations in any meaningful way.

The banks would require around $140 billion in total capital to ensure full Basel-III implementation by March 2019, Fitch Ratings said in a statement.

Indian banks’ stressed assets ratio should improve marginally in financial year 2016 (FY16) from 11.1 per cent in FY15, although there was still some time before a reversal in absolute non-performing loans (NPLs).  

Fitch said new NPL growth had started to slow down across many banks. But resolution of the existing large stock would be a slow and protracted process — as structural challenges in stressed sectors still persisted while corporate leverage remained high. Therefore, credit costs were likely to remain high and would continue to be an overhang on earnings growth for a longer period. Things could be different (better) if macroeconomic recovery and speedier reforms aided faster asset resolution or banks conducted greater capital-raising to push growth, or both, the statement said.

Fitch said Indian banks’ credit growth was likely to be moderately higher in FY16 (ending March 2016), but any sharp recovery in credit fundamentals appeared unlikely with capital and asset quality-related challenges acting as impediments to growth.

The recovering economic growth outlook was positive and should bode well for the sector.  The large private banks were distinctly better placed in leveraging a rebounding economy, Fitch added.