India's public sector banks, which are sitting a huge pile of bad loans, will need a whopping Rs 1.2 lakh crore capital to meet Basel III banking norms in the next five months.
India’s public sector banks, which are sitting a huge pile of bad loans, will need a whopping Rs 1.2 lakh crore capital to meet Basel III banking norms in the next five months, a report has said.
Basel III is an internationally agreed set of norms to reduce the risk in the baking system by maintaining a certain minimum level of capital. The norms kicked-in after the 2008 financial crisis and the deadline for Indian banks to comply with it is March 2019.
Most of this Rs 1.2 lakh crore is needed for 11 banks that are under the central bank’s Prompt Corrective Action (PCA), rating agency Crisil said in a report. “But given their weak performance and low valuations, PSBs banks have little ability to tap the market, which means the government will have to provide most of the requirement,” it added.
Last year in October, the government announced an unprecedented amount of Rs 2.11 lakh crore capital infusion into the PSU banks. It was in addition to an infusion of Rs 70,000 crore under the Indradhanush plan introduced in 2015 to help banks meet the Basel III norms.
In the last 18 months, the government has infused only Rs 1.5 lakh crore, which only ended up helping banks offset their losses earlier this year. Total net loss of banks in just the financial year 2018-19 was Rs 87,000 crore.
“Over the past three fiscals, the government has infused about Rs 1.5 lakh crore into PSBs. However, this has only helped offset losses of Rs 1.3 lakh crore racked up in the period,” Krishnan Sitaraman, senior director, Crisil ratings said.
“The increase in regulatory capital ratios required as per Basel III norms by March 2019, and mounting losses mean government infusion could be near twice the Rs 53,000 crore scheduled for this fiscal under the recapitalisation plan,” he added.
Presently, the situation is tense due to the conflict between the government and the Reserve Bank of India (RBI) on a slew of issues.
A report by The Indian Express on Monday reported that the government wants Rs 3.6 lakh crore from the RBI, more than a third of its total reserves, for several purposes including recapitalization of the banks, while the central bank has denied the request.
The RBI has maintained that the surplus profits are not fresh income and it is required to keep money in reserves for liabilities, risks, and contingencies.