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According to the rating agency, Indian banks might need Rs 2,60,000 crore of additional capital by 2018 as they strive to meet Basel-III requirements.
Starting April 1, Indian banks will begin to implement the Basel-III capital requirement, which will increase their capital requirement in phases.
Some smaller banks may face difficulties in meeting Basel-III requirements, though the extent will vary from bank to bank. For weakly capitalised banks, the capital requirement could go up to two to three times their current market capitalisation, said S&P.
Some smaller banks could also become takeover targets, which could result in consolidation of a fragmented sector, said Deepali Seth, S&P’s credit analyst.
The biggest challenge for the sector is the state of Indian public finances. “The government’s large fiscal deficit will limit its ability to inject capital into government-owned banks, which currently have less capital adequacy than the private and foreign banks operating in India,” said S&P.
Banks could need additional capital of at least Rs 69,100 crore to meet the Reserve Bank of India’s eight per cent requirement for the common equity Tier-1 and capital conservation buffer ratio. The additional requirement could rise to Rs 2,60,000 crore, due to a tendency to hold higher-than-minimum capital and the limited market for hybrid instruments in India.
CASH COUNT
- Starting April 1, Indian banks will begin to implement the new Basel-III capital requirement
- Indian banks may need Rs 2,60,000 crore of additional capital by 2018
- Smaller banks may face difficulties in meeting Basel-III requirements
- For weakly capitalised banks, the capital requirement can go up two to three times their current market capitalisation
