Raising concerns over weak capital positions in Indian banking system, global rating agency, Fitch ratings in its latest report has said that the Public Sector banks may need around $65 billion of additional capital by March 2019 to meet the new Basel-III capital norms. However, this latest estimated amount of capital requirement is lower than previous estimation done by the rating agency at $90 billion, on account of asset rationalisation and weaker-than-expected loan growth.
Fitch ratings also expressed need to address issue to avoid negative influence of weak capital positions on Indian banks' Viability Ratings, stating that state banks have limited options to raise the capital they still require and are likely to be dependent on the state to meet core capital requirements.
The rating agency further noted weak prospects for internal capital generation, pointing that low investor confidence impedes access to the equity capital market. Besides, the report found improvement in access to the additional Tier-I (AT1) capital market in recent months, on the other hand it found that around two-thirds of the capital shortage is in the form of common equity Tier-I (CET1).
Fitch ratings is expecting release of capital from the Non-performing loan (NPL) resolution process, which is being led by the Reserve Bank of India (RBI), if recovery rates are high in line with banks and the government expectations.