Nifty99000 100%

Sensex99000 100%

Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
RSS

News

Indian banks stare at default risk; need $90 bn capital by 2019: Fitch

Author: IANS/Thursday, March 9, 2017/Categories: Banking & Financial Services

Indian banks stare at default risk; need $90 bn capital by 2019: Fitch


Chennai, March 9 (IANS) - Global credit rating agency Fitch Ratings has said that some Indian banks are at the risk of skipping coupon payments on capital instruments over next couple of years. The agency added that the risk is despite the pressure easing measures by the Reserve Bank of India (RBI), additional capital infusions into government owned banks. "Mid-sized state banks are the most at risk of breaching capital triggers," Fitch said.

According to Fitch distributable reserves at small-to-mid-sized state banks were down by one-third in this fiscal during the nine month period as compared to last fiscal's corresponding period, reflecting persistent losses and weak internal capital generation.

"Five state-owned banks suffered losses that were equivalent to more than 30% of distributable reserves in 9M17 alone. The RBI's recent decision to allow banks to make additional Tier 1 (AT1) coupon payments from statutory reserves may have helped mitigate short-term coupon-deferral risks, but state banks' reserves are likely to continue falling," Fitch said.
 
 The RBI has made several regulatory adjustments in the last few years to avoid potential damage to sentiment in the domestic market for capital instruments.
 
 These changes have been applied to the sector as a whole and are not unique to India, but their timing suggests the RBI has felt pressure to provide headroom to state banks.
 
 Some banks are also at risk of missing coupon payments on capital instruments as a result of breaching minimum capital requirements.
 
 Fitch's analysis indicates that the total capital adequacy ratio (CAR) of 12 banks was at or below the 11.5% minimum that will be a prerequisite for payment of coupons on both legacy and Basel III AT1 capital instruments by 2018-19.
 
 There were also 11 banks with common equity Tier I ratios at or below the 8% minimum that will be required to make coupon payments on AT1 instruments by 2018-19. Fitch said Indian banks need around $90 billion fresh capital by 2019 to meet Basel III standards and government owned banks account for around 80% of that.
 
 Government owned banks are constrained in raising new equity due to heavy discounts on valuations while limited market depth remains a hurdle to issuing capital instruments domestically.
 
 Banks which are capable of tapping overseas markets have been reluctant to do so due to pricing concerns. This leaves state banks largely reliant on the government for recapitalisation, Fitch said.
 
 The $10.4 billion that the government has earmarked for capital injections into state banks is unlikely to be enough to support balance-sheet growth.
 

Print Rate this article:
No rating

Number of views (30)/Comments (0)

S Vijaykrishnan
S Vijaykrishnan

IANS

Other posts by IANS
Contact author

Leave a comment

Name:
Email:
Comment:
Add comment

Name:
Email:
Subject:
Message:
x

Videos

Ask the Finapolis

I'm not a robot
 
Dharmendra Satpathy
Col. Sanjeev Govila (retd)
Hum Fauji Investments
 
The Finapolis' expert answers your queries on investments, taxation and personal finance. Want advice? Submit your Question above
Want to Invest
 
 

Categories

Disclaimer

The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.