Indian PSUs need up to $37 bn to meet Basel II norms

London, Sep 22 (IANS/RAY) India's public sector banks may need from $26 billion to $37 billion in external capital as Basel III norms loom, Moody's said Monday.

This, even if there's a slight bounce back in the country's GDP growth. It also assumes a steady tapering off of non-performing loans from present levels, Moody's said.

"Moody's rated (Indian) public sector banks will need to raise Rs.1.5 to Rs.2.2 trillion, or $26-37 billion between FY 2015 and the full implementation of Basel III in FY 2019," a Moody's statement said.

The Moody's assessment was based on examining 11 public sector banks, reflecting 62 percent of net loans in the Indian banking system.

"Indian public sector banks barely meet current minimum capital requirements, and we anticipate that they will find it difficult to raise capital quickly in the current environment," Gene Fang, a Moody's vice-president, was quoted as saying.

Basel III raises the minimum required capital levels for both total tier-1 to 7 percent and common equity tier-1 (CET1) capital to 5.5 percent, and banks will also need to meet a capital conservation buffer in order to pay dividends, according to International Business Times.

"That will pressure Indian public sector banks, as low capital levels remain a key credit weakness," the rating agency said.

Moody's pointed out that weak asset quality has lowered profitability and internal capital generation, thereby leaving the banks dependent on periodic capital injections from the government.

Feng also said: "With Prime Minister Narendra Modi's new administration looking to reduce the country's budget deficit, the amount available for such injections is not likely to grow."

Moody's felt the banks could struggle to raise the required sum, with valuations of the banks still being relatively low. This, notwithstanding Indian stock markets showing an upward trend and the banks likely to tap the equity markets to raise capital.

Moody's concluded that a significant part of the required capital -- around Rs.800-900 billion, or $13-15 billion -- could be in the form of additional tier-1 capital.

--IANS/RAY

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