Fitch: New Equity and Reforms Help Indian Banks' Basel III Goals
The fresh capital raised by private banks should fund credit growth and give the banks an early start in meeting the Basel III requirements. IndusInd Bank issued INR20bn in December 2012, improving its Tier 1 ratio to 14.85% at end-2012 (including nine months of profit). Axis Bank boosted its equity base by 20% through an INR55bn capital placement in January 2013.
The banking system needs a strategy to achieve Basel III compliance - despite the transitional requirements being largely back-loaded, with over three-quarters of the additional regulatory core capital arising in 2016-2018. The Reserve Bank of India estimated additional capital requirements for private banks to be INR200bn-250bn (USD3.6bn-4.6bn). For the state banks, the estimate of the government's share is INR880bn-910bn (USD16bn), assuming public ownership is maintained at current levels, of which INR125bn (USD2.3bn) was injected into 10 public sector banks in January. The capital position for state-owned banks is underpinned by the government's commitment to maintain a minimum 8% Tier 1 ratio.
The government now has an additional source of funding for the banks, as amendments made in
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