Indian lenders need at least $15 billion to meet tier-I norms: Fitch1 min read . Updated: 02 Jul 2020, 06:30 AM IST
- Public sector lenders will require the bulk of the recapitalization, as the risk of capital erosion at such banks is significantly higher than for their privately-owned peers, Fitch says
- The requirement could go up to $58 billion in a high-stress situation where the economy fails to recover
MUMBAI : Indian banks are likely to require at least $15 billion in fresh capital to meet a 10% weighted-average common equity tier 1 ratio under a moderate stress scenario, Fitch Ratings said on Wednesday.
This requirement, it said, could go up to $58 billion in a high-stress situation where the domestic economy fails to recover from the coronavirus pandemic-related disruption.
India’s public sector lenders will require the bulk of the recapitalization, as the risk of capital erosion at such banks is significantly higher than for their privately-owned peers, Fitch said.
“We expect the majority of the injection to come through in FY22, as bad loan recognition has been pushed back by a 180-day regulatory moratorium. However, a clearer picture should start to emerge from December 2020, unless the central bank agrees to a one-time loan restructuring, which would affect the timely recognition and resolution of bad loans," said Fitch.
The reported performance of Indian banks for FY20 does not adequately reflect the incipient stress caused by the pandemic, according to the rating agency. The results are broadly in line with its expectations, Fitch said, but bank balance sheets are yet to feel the impact of India’s strict lockdown measures that were implemented by the government from 25 March 2020.
“Moreover, a meaningful short-term recovery looks unlikely, as the acceleration of new covid-19 cases threatens the gradual reopening of the economy," it said. The core capitalization of banks improved by about 90 bps, mainly because of a $9 billion government equity injection into PSBs coupled with lower growth, implying high risk aversion among banks, it said.The core capitalization of state-owned banks was about 350 bps weaker than that of private banks, despite the fresh equity, leaving their limited capital buffers susceptible to stress, Fitch said.