The Indian banking sector will require an additional of Rs 5,68,744 crore in the next five years to maintain the capital adequacy ratio at 12 per cent as banks gear up to meet stringent Basel II norms and face a more competitive environment fraught with risks.
A major chunk of this will have to be raised by public sector banks, which corner about 70 per cent of banking assets. The state-owned banks will need to raise Rs 3,69,115 crore (64.9 per cent). The new generation private banks, which have seen rapid growth in assets, will need Rs 1,13,180 crore (19.9 per cent), followed by foreign banks at Rs 63,131 crore (11.1 per cent).
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CAPITAL NEEDS
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Rs crore
| Projected risk-weighted assets | Projected capital requirement | Projected tier-I capital requirement |
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Commercial banks
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| 2008 | 33,97,383 | 3,05,764 | 1,52,882 |
| 2009 | 42,39,008 | 3,81,511 | 1,90,755 |
| 2010 | 50,61,643 | 4,55,548 | 2,27,774 |
| 2011 | 60,41,344 | 5,43,721 | 2,71,860 |
| 2012 | 72,07,788 | 6,48,701 | 3,24,350 |
| Public sector banks | |||
| 2008 | 22,12,938 | 1,99,164 | 99,582 |
| 2009 | 27,61,143 | 2,48,503 | 1,24,251 |
| 2010 | 32,96,979 | 2,96,728 | 1,48,364 |
| 2011 | 39,35,122 | 3,54,161 | 1,77,080 |
| 2012 | 46,94,903 | 4,22,541 | 2,11,271 |
| Note: Scenario II (capital requirement - 9 %, overall and 4.5% Tier I) Source: RBI | |||
The old private banks, the number of which has dwindled over the years, will require Rs 23,319 crore (4.1per cent). According to the Reserve Bank of India’s report on Thursday, total capital requirements for the banking sector will increase to Rs 4,07,686 crore by March 2008 and Rs 8,64,935 crore by March 2012 from Rs 2,96,191 crore at March 2007.
As far as the capital raising options to the banks are concerned, the report says, “A significant proportion would be met by internal resources, like growth in reserves and surplus, in the next five years.”
During 2007-12, the total tier I capital requirements for the banking sector are estimated to go up to Rs 2,33,564 crore. Majority government holding in nationalised banks could hamper PSBs’ capital raising plans to maintain Basel II norms, the report implies.
At present, the total headroom available to state-owned banks is pegged at Rs 2,637 crore, which means that “nationalised banks could access the market to the extent of Rs 5,171 crore and still retain a government shareholding of 51 per cent,” the report added.
Of 20 nationalised banks, this headroom, to a significant extent (above Rs100 crore), is available to only six banks. Since the option of tapping the capital market is limited, public sector banks would need about 40 per cent tier I capital from sources other than reserves and surplus. The banks can raise capital through hybrid instruments to the extent of 40 per cent of tier I capital.
