State-run banks will need $38 billion by the end of the financial year 2018-19, in order to sufficiently meet minimum Basel III capital standards, achieve 65% cover for non-performing assets, and leave some surplus capital for growth.
Fitch has retained negative outlook for Indian banks reflecting the ongoing challenges for weak lenders, such as struggle to maintain core capitalisation amid poor profitability and rising macro headwinds. The rating agency said that the public sectors banks need more capital infusion than the central government has already planned.
The Indian state-run banks will need $38 billion by the end of the financial year 2018-19, in order to sufficiently meet minimum Basel III capital standards, achieve 65% cover for non-performing assets, and leave some surplus capital for growth, according to Fitch’s estimates.
“It implies that the state will have to inject the $11 billion it plans to inject by FY19 and an additional $6 billion it had earmarked as fresh equity issuance from state banks by FY19, with support from asset sales or other sources to comply with minimum Basel III norms,” Fitch noted.
Further, it added that private banks in the country are expected to recover faster than the state-run lenders, which would remain an overhang for the entire sector. “The rating outlook for most banks mirrors the Stable Outlook on India’s sovereign rating,” Fitch noted.
For the financial year ending on March 31, 2019, the banks are likely to register weak earnings, while some state-run banks may post losses. The rating agency though expects the NPA (non-performing assets) problem to peak next year. However, the complexity and size of the banking sector’s $140 billion NPA stock will take time to resolve it added.
Credit cost in the current fiscal have moderated, it said, adding that ageing provisions are large enough to absorb the bulk of the weak pre-provision profit.