Banks need over USD 200 bn capital in next 5 years: Fitch

Rating agency Fitch today said Indian banks will require more than USD 200 billion (about Rs 12 lakh crore) in fresh capital as they prepare for the full implementation of Basel III capital requirements by March 2019. The core capital position of the Indian banking system is weaker than that of many Asian banking systems that are also migrating towards the Basel III capital norms, Fitch said in a study.

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State-owned banks to account for 85 percent of the capital requirement. As per the estimates, public sector banks require Rs 2.40 lakh crore equity capital by March 2019. These banks account for a higher proportion of stressed assets - their stressed assets formed around 12 percent of total system assets in 2013-14 compared with 10 percent for the system - and have lower profitability, which have added to their capitalisation pressures.

Private banks are much better positioned in terms of their capital levels and access to markets. Stressed assets in the Indian banking system are likely to peak around 2014-15, though there will be near-term pressures due to economic slowdown and existing structural and policy-related constraints. Any improvement after that will be gradual, it said. Banks are likely to raise mostly core equity and additional Tier 1 capital to meet the capital shortfall, it said, adding, capital raising, thus far, has been limited to a few banks, though Fitch expects greater momentum for the latter going forward.

Recent amendments by India's central bank to Basel III capital guidelines have created a more favourable environment for creditors and broadened the pool of investors, it said. It may take more time for the banks to raise core equity capital because valuations have yet to recover, it added.

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