Red lights flashing in PSBs make fresh equity injections imperative

Fitch Ratings says many state banks are able to meet minimum regulatory thresholds under moderate stress, but most struggle to manage a 6.125 per cent common equity tier-1 (CET1) ratio under high stress — the applicable bail-in trigger for additional tier-1 securities from September 2020. Fresh equity injections have become significantly more imperative, as economic recovery remains shaky due to continued acceleration in new coronavirus cases.

Private banks have better loss-absorption capacity, but are nonetheless bolstering core capital, with ICICI and Axis Bank planning to raise nearly $2 billion each in fresh equity in the near term. This should add 200-245 basis points to their CET1 ratios, further widening the gap between them and their state-run peers.