Top three private banks will need Rs 70k cr: Fitch

Axis, HDFC and ICICI banks will need capital by 2017-18 to meet Basel-III norms, the rating agency said

India’s top three private banks — Axis Bank, HDFC Bank and ICICI Bank — would need about Rs 70,000 crore ($12.5 billion) in capital by 2018 to meet the Basel-III norms, according to rating agency Fitch.

Axis Bank, which manages capital tightly compared with the other two (HDFC Bank and ICICI Bank), may need to start at the earliest to tap the market for capital.

Its capital adequacy ratio (CAR) was 13.03 per cent at the end of June 2012.

ICICI Bank had a CAR of 18.54 per cent while HDFC Bank’s capital adequacy was 15.51 per cent at end of June 2012.

 

Fitch said in a statement the implementation of Basel-III is likely to mean that these banks would, at some point before 2019, need to access the markets for capital.

It expects the Indian market to be particularly active between FY16 and FY18 as banks look to meet the minimum requirements.

These three private lenders have robust profitability foundation, supported by strong income diversity (given robust fees franchise) and stable costs. These banks have reported return on asset of above one per cent consistently over the past five years (except ICICI Bank in FY09).

Moreover, stable dividend payout ratios have ensured that internal capital accretion to the existing capital base is strong.

Fitch has affirmed the long-term foreign currency issuer default ratings of ICICI Bank and Axis Bank at BBB- and HDFC Bank and Axis Bank’s National LT ratings at AAA.

The ratings are driven by their standalone risk profiles, as indicated by their viability ratings. The affirmations factor in the strength of franchise, steady and consistent performance on various aspects of the credit metrics, particularly asset quality, funding and profitability.

The banks’ capitalisation is an important supporting factor for the current variable ratings. Fitch notes quantity and quality of capital across the banks underpin absorption capacity when asset portfolios are stressed under adverse scenarios.

The stress test shows that capital impairment for all the three banks is zero to negligible under stress conditions.

However, HDFC Bank’s ability to withstand stress is noticeably higher than Axis Bank and ICICI Bank, underpinned by its robust margins, strong funding structure and loan book diversity, the agency added.