"Indian banks will be required to raise Rs 3 trillion in external capital in next four years. Expansion of capital to this extent will affect the returns on the equity of these banks, especially public sector banks," Indian Overseas Bank DGM Vairam Somasundaram said at a seminar here.
"It will be difficult for the government to find such a large amount to capitalise the public sector banks. The situation of the private sector banks will not be much different, leading to merger and consolidation of the banks," he opined.
RBI's directive to implement the Basel III norms by 2018 March, was also a big challenge, he said.
According to Somasundaram, the financial inclusion target laid down by the government by 2016, increasing competition among banks, huge spending on technology, emergence of mobile service providers like Airtel into the banking sector and lack of experienced employees are among the other challenges before the banks in future.
K S Harikumar, Chief Regional Manager, Manappuram Finance Ltd said along with Basel 111 implementation, fresh banking licences also will be a threat to existing banks.
He was of the opinion that the private banks in Kerala may merge together within next five years to "overcome competition."
Increasing NPAs will be a major challenge for the Indian banks. It was estimated that the NPA will grow to Rs 12,5000 crore by 2018, he added.