Basel III norms are expected to be fully implemented by March 2019 and would require Indian banks to shore up cash of up to $65 billion or Rs 4,16,000 crore. 

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Even though $65 billion is not a small amount, the earlier expected amount stood at $90 billion. Fitch Ratings, in a report on September 12, 2017 said, "Capital needs have fallen from our previous estimate of $90 billion, largely as a result of asset rationalisation and weaker-than-expected loan growth."

The issue, however, is likely to be much more serious for state run banks as they are dependent on the Government of India for meeting their capital requirements. The government is committed to investing only another $3 billion in fresh equity for 21 state banks over FY18 and FY19, having already provided most of the originally budgeted $11 billion. 

Fitch Ratings said, "The government will have to pump in more than double, even on a bare minimum basis (excluding buffers), if it is to raise loan growth, address weak provision cover, and aid in effective NPL resolution - the gross NPL ratio reached 9.7% in FY17, up from 7.8% in FY16."

The non-performing assets issue currently plaguing the Indian banking system has the likelihood fo releaasing some trapped capital. There are 12 currently going through resolution, representing 25% of total system NPLs, and the RBI has recently released a list of 50 more accounts that banks have been directed to resolve within three months or push into the insolvency process. Fitch Ratings said, "NPL resolution process being led by the Reserve Bank of India (RBI) could potentially release capital if recovery rates are as high as banks and the government are hoping for."

The report said, "State banks are unlikely to be freed from their current gridlock unless NPL resolution is accompanied by additional capital. They have already lost around 300bp in market share to private banks since FY12 as government capital injections have not been sufficient to support growth."

Indian banks' loan growth slumped to 4.4% in FY17 - the lowest in several decades - and it is unlikely that state banks will grow at all in the foreseeable future given their capital constraints. Many state banks, particularly smaller ones, will struggle to survive as individual banks, and could be swept up into the government's consolidation agenda, the report further said.