PSBs may need capital of Rs 2.06 trillion for credit growth of 8-9% in FY19: Ind-Ra

09 Feb 2018 Evaluate

The India Ratings and Research (Ind-Ra), a subsidiary of Fitch Ratings, in its latest report has stated that public sector banks (PSBs) may need more capital for higher growth. It has estimated that state-run banks may need capital of Rs 2.06 trillion for a credit growth of 8-9% in the financial year 2018-19. It added that the recapitalisation amount from the government will go towards sustaining the banks. As per the report, this amount factors in around Rs 1.4 trillion of capital needed for Basel III transition (Rs 0.67 trillion of common equity tier (CET) 1 requirement and Rs 0.76 trillion of additional tier (AT) 1 requirement). It also includes Rs 0.63 trillion of one-time provisioning for migrating to the expected loss regime on transiting to Ind-AS 109 on April 01, 2018.

The report stated that on account of accelerated provisioning requirement on the cases identified by the regulator to be referred to the National Company Law Tribunal under the Insolvency and Bankruptcy Code in FY18, the profit and loss account for most state-run banks would also be under pressure. Maintaining a stable outlook on private sector banks and large public sector banks (PSBs) for FY19, Ind-Ra expects banks to navigate a year of modest growth recovery and high credit costs, although declining, through better access to growth capital and early signs of macro-revival. It also expects banks impaired assets to peak at 12.7% by FY19-FY20, and credit costs to witness a slow and gradual recovery due to the aging of a large stock of non-performing assets (NPAs) added over the last four quarters.

The rating agency highlighted that a meaningful proportion of mid-sized stressed corporates (1.6% of bank credit as of September 2017) continues to be standard on bank books with absolutely no form of recognition and could slip to the non-performing category in the next 12-18 months. Besides, additional stressed assets of around 1% (as of September 2017) could slip into the NPA category, primarily from the standard restructuring and failed strategic restructuring schemes, most of which would be completing 18 months’ time in the next three to four quarters. It also said that after a year of prodigal profit booking on a high yielding treasury book, Indian banks are likely to post subdued treasury gains in FY18 and added that the hardening of yields due to drying up of excess liquidity could render banks with subdued gains in FY18, which could spill over into FY19.

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