Indian banks will require around USD 90 billion (around Rs 6 lakh crore) to meet the capital requirements under the Basel III norms, of which 80 per cent would have to go to PSU banks, Fitch Ratings said today.
More than 50 per cent of the requirement have to be met via core equity and the rest largely via additional Tier 1 debt capital instruments, it said.
"Fitch Ratings expects Indian banks to require around USD 90 billion of capital to meet new Basel III capital standards that will be fully implemented by the financial year ending March 2019," it said.
The capital needs of public-sector banks form about 80 per cent of the system total, it added.
The government has announced Rs 70,000 crore capital infusion for 22 public sector banks by March 2019. Of this, Rs 25,000 crore has already been injected and the government plans to infuse as much during the current fiscal.
Finance Minister Arun Jaitley has said the government is willing to provide more funds to PSBs if required.
"However, the government or other related entities is likely to have to inject more funds so that the banks continue to lend while managing pressures on asset quality, resolution of problem loans and elevated credit costs," Fitch said.
The capital needs have come down due to weak loan growth, but they are onerous for the banks, given weak asset quality and internal capital generation.
"The sharp rise in their non-performing loans and resultant losses have weakened the banks' core capital buffers, which will be further stretched when adjusted for a higher 70 per cent provision cover on problem loans," Fitch said.
The viability ratings of these banks will be under more pressure if capital levels are not addressed, either by the government or the market.
"Resolving the asset quality and capital issues will be important for some banks to regain market access, which is now difficult for the majority of state banks.
