Indian Banks face $3-4 bn capital shortfall in near-term

Indian, Chinese banks to see $ 100 bn capital gap in 2019

Standard & Poor’s today said Indian banks may face a $ 3-4 billion capital shortfall to maintain common equity tier I capital ratio of 8% if Reserve Bank of India decides to implement Basel III norms immediately.

High-growth banking systems like those in India and China will face challenges in maintaining or raising capital ratios. The total capital shortfall of major banks in both countries could reach about US$100 billion in 2019.

The capital shortfall of the banking industry in India could reach about US$10-15 billion if their risk assets grow annually by 18%, their return on assets (ROA) gradually improves from 2010-2011 levels. The dividend payout ratio is expected to be constant for each bank.

The state-owned banks in India could manage shortfall without cutting risk assets as the government may infuse money or they could tap the capital market. The government's capacity to provide sufficient capital in a timely manner does, however, pose a risk, S&P said.