War Chest Plan: Banks to raise capital to absorb Covid shock

June 18, 2020 2:46 AM

These companies have bond repayments of around Rs 22,000 crore coming up over the next 12 months. Reserve Bank of India (RBI) has allowed borrowers a six-month repayment holiday to help them tide over the difficult situation in the wake of the pandemic.

Similarly, Credit Suisse expects public sector banks to dial the government for $13 billion in capital.Credit Suisse estimates banks will need additional capital to the tune of $20 billion to tide over asset-quality issues.

By Ankur Mishra

India’s banks are rushing to shore up their equity bases, not because they anticipate a spurt in lending but because they’re anxious rising loan losses will require them to set aside more capital as provisions. State Bank of India (SBI) said on Tuesday it would seek a nod from shareholders in July to mop up Rs 20,000 crore.

Federal Bank will consider a capital raise at its July 19 board meeting while Yes Bank is mulling a public offering to raise Rs 8,000 crore, according to Bloomberg, having armed itself with a board approval to raise Rs 15,000 crore. The lender needs Rs 8,800 crore to bring its common equity Tier 1 (CET 1) capital to 10%, from 6.3% as of March 2020. Kotak Mahindra Bank recently raised Rs 7,442 crore by issuing 65 million shares at Rs 1,145 per share via a qualified institutional placement (QIP).

Credit Suisse estimates banks will need additional capital to the tune of $20 billion to tide over asset-quality issues. Analysts at the brokerage pointed out how around Rs 2.5 lakh crore of debt has been downgraded to ratings that “are likely to make refinancing challenging”. These companies have bond repayments of around Rs 22,000 crore coming up over the next 12 months. Reserve Bank of India (RBI) has allowed borrowers a six-month repayment holiday to help them tide over the difficult situation in the wake of the pandemic.

Sreedhar Vegesna, partner and leader – financial services advisory, PwC India, believes not all retail and corporate customers may be able to repay their dues after the moratorium lifts. If the pandemic continues the provision rate for banks will increase and they will need capital to meet the regulatory norms,” he said.

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