Banks need to raise Rs 20K cr in tier-1 capital this year:ICRA

Rating agency ICRA said here today that lenders would need to raise Rs 20,000 crore in additional tier-I (AT1) capital this fiscal, but flagged risk posed by lower appetite for such instruments.
"They will have to raise Rs 20,000 crore this fiscal and it will only go up, as we approach the FY 2019 deadline for Basel-III implementation, to about Rs 40,000 crore to Rs 50,000 crore per year," ICRA analyst Vibha Batra told PTI.
She said lenders are not announcing such issues and there has not been a single issue yet, due to low investor appetite.
If the issuances of the AT1, a hybrid instrument, do not go through, banks would have to raise resources through equity capital, she said, stressing that AT1 is cheaper.

It may be noted that under the Basel-III capital computation, RBI is asking banks to raise 1.5 per cent using the AT1 instrument.
However, Batra said the AT1 instrument comes with "significant risk".

As it is a tier-I instrument, the loss absorption feature sets in early, she said, adding that it could set in even in cases of booking of losses as they get done in normal course.
"This is so because AT1 investors may have to absorb losses on a going concern basis to protect depositors and are not expected to be bailed out by the government," the note said.

For conventional debt instruments, systemic importance of a bank helps depositors and debt holders get support from strong government support which would not be available to AT1, she said.
"It is because of such strong support that no scheduled commercial bank defaulted in the past despite reporting losses or breaching minimum capital adequacy norms," the ICRA note said.