Government Banks Need More Capital To Meet Basel III Norms, Says Crisil

Public sector banks need Rs 1.2 lakh crore in Tier-1 capital by March 2019, says Crisil 

A cyclist stops by in front of Punjab National Bank’s Brady House Branch in Mumbai, India. (Photographer: Anirudh Saligrama/BloombergQuint)
A cyclist stops by in front of Punjab National Bank’s Brady House Branch in Mumbai, India. (Photographer: Anirudh Saligrama/BloombergQuint)

Public sector banks will need Rs 1.2 lakh crore in fresh capital by March 2019 to meet regulatory requirements, ratings agency CRISIL said in a report on Tuesday.

The estimated capital requirement is Rs 21,000 crore more than the Rs 2.11 lakh crore bank recapitalisation plan announced by the government in October last year. Over the past 18 months, Rs 1.12 lakh crore has been infused, leaving a requirement of Rs 99,000 crore according to the original plan, said the report.

Most of this amount would be needed to recapitalise the 11 public sector banks that are under the central bank’s Prompt Corrective Action framework and are facing lending restrictions as a consequence. PSBs under PCA have had to recall additional Tier 1 bonds in recent times, further denting their capital adequacy.

The capital infusion so far has only helped offset the Rs 1.3 lakh crore losses incurred by the banks over the past three fiscals, said Krishnan Sitaraman, senior director at CRISIL Ratings.

The increase in regulatory capital ratios under Basel III norms by March 2019, and mounting losses of some of these banks means that government infusion could be nearly twice the Rs 53,000 crore scheduled for this fiscal under the recapitalisation plan.
Krishnan Sitaraman, Senior Director, CRISIL Ratings
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Of the 21 public sector banks, Tier I capital adequacy ratios of 13 banks were below the regulatory norm as on June 30, the report stated. Tier 1 capital adequacy ratio is set at 9.5 percent and includes a capital conservation buffer of 2.5 percent. Excluding this buffer, incremental capital required would come down to Rs 40,000 crore, stated the report.

Vydianathan Ramaswamy, associate director at the ratings agency said that along with increasing the quantum of capital infusion and bringing down risk-weighted assets, better performing banks have to be nudged towards the market for capital. He added that further consolidation of stronger PSBs with weaker ones, on the lines of the merger between Bank of Baroda, Vijaya Bank and Dena Bank, can also help reduce the additional capital required.