Indian banks need to raise Rs 50,000 crore in FY21 to absorb credit cost: India Ratings

Indian banks need to raise Rs 50,000 crore in FY21 to absorb credit cost: India Ratings


KOLKATA: Indian banks would need to raise a minimum Rs 50,000 crore between them this fiscal to absorb the credit cost and to create buffers for growth even as they received a breather by way of a resolution framework for Covid-related stress on loan accounts.The public sector banks as a group will alone need to raise 60 per cent of it, or Rs 30,000 crore, India Ratings & Research said. It has lowered this estimate from an earlier Rs 32,500 crore as banks’ credit cost may temporarily come down as they are allowed to restructure stressed loans.

“Banks, especially PSBs, have definitely received more time to raise capital. This (resolution framework) may be more useful for PSBs than private banks as the latter have either raised capital or are in advanced stages of doing the same,” India Ratings said.

The annual capital requirement for PSBs have come down significantly as all these banks now have adequate capital given the regular infusion by the government over the last few years.

According to the rating company, private banks would have needed to raise a minimum Rs 20,000 crore if they are to maintain 10 per cent tier-1 capital while banks such as Axis, ICICI and YES have already raised in excess of Rs 40,000 crore capital between them since April.

The rating company estimated that around Rs 8.4 lakh crore of bank loans, which is 7.7 per cent of the total bank credit seen at the end of March, may be needed to be restructured. About 60 per cent of it was already susceptible to slip into the NPA category post lockdown, in absence of restructuring.

A large part of loan assets that otherwise would have slipped to the gross non-performing assets pool will now be restructured and therefore provisioning requirements of banks would be lower than what it would have been if the loans were allowed to turn bad in the absence of loan recast.

Out of Rs 8.4 lakh crore of likely stress, about Rs 6.3 lakh crore comes from the corporate sector such as real estate, airlines, hotels and infrastructure like power and construction with the balance Rs 2.1 lakh crore from agriculture and retail.

The regulatory breather would provide banks with an opportunity to keep viable accounts as standard in their books. RBI’s macro stress tests for credit risk showed that the GNPA ratio of all scheduled commercial banks (SCBs) may rise to 12.5 per cent by March 2021 under the baseline scenario and to 14.7 per cent under a very severely stressed scenario, from 8.5 per cent in March 2020.

“The provisioning requirement could reduce by around 10 per cent on the restructured pool in FY21 from its earlier expectations on loans that could have turned NPAs. As the tenor for the restructured loans can be extended for a maximum of two years, the credit cost impact in accounting terms could be benign in FY21 and FY22,” the rating company said.

Credit: Stocks-Markets-Economic Times

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