Most public sector banks are likely to face pressure in terms of growth and profitability during FY17 owing to their high capital requirements, both from the government and the capital market, India Ratings said in a report on Monday.
Large public sector banks, however, are expected to fare better due to their higher internal accruals, strong capitalisation and better access to capital markets, it added.
The report also said approximately one-third of all corporate loans, which account for 21% of the overall bank credit, are under stress. India Ratings had earlier analysed 30 large corporates, together accounting for close to 9% of overall bank credit, and found that most of them fall under the SMA 1 (principal or interest payment overdue for between 31 and 60 days) and the SMA 2 (payment overdue for between 61 and 90 days).
Therefore, going ahead, banks will continue to face headwinds from their large corporate accounts and would have to take a potential haircut of around Rs 1 lakh crore, India Ratings said. Of this, public sector banks would have to take a haircut of around Rs 93,000 crore.
The rating agency said it estimated incremental tier-I capital requirement to be around Rs 2.9 lakh crore, including additional tier-I bonds (AT-I) worth Rs 1.5 lakh crore.
Considering current growth plans of banks across sectors, lenders would need to raise at least Rs 55,000 crore through issue of AT-I bonds by March 2017.
So far, banks have raised around Rs 13,000 crore through AT-I bonds. “…active participation by insurance companies and provident funds, however, remains to be seen. Hence, a pick-up in AT-1 appetite remains a key monitorable in FY17,” the rating agency said in its report.
India Ratings also said it expects credit costs to increase sharply in the remainder of the current fiscal and in the one ending March 2017. “Impaired assets are expected to rise to 12.5% of loans by FY17, compared to 10.8% in FY15,” it said.