Nifty99000 100%

Sensex99000 100%

Article rating: No rating
Article rating: 4.0
Article rating: 5.0
Article rating: 3.3
Article rating: 5.0
Article rating: 4.0
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: 4.3
Article rating: 1.0
Article rating: No rating
RSS

News

Higher FDI may help banks to meet capital norms

Author: Debasis Mohapatra/Monday, January 22, 2018/Categories: Banking & Financial Services

Higher FDI may help banks to meet capital norms

Mumbai, January 22 - Proposal to further liberalise FDI in banking sector can help Indian banks to raise capital to meet Basel norms apart from improving governance and service delivery, analysts said.

According to reports, the government is mulling to allow 100% FDI in private banks and 49% in public sector banking space in a bid to help banks meet capital requirements.

“Higher FDI in banking space is a good idea. It could potentially help banks garner capital apart from improving governance standards,” Udit Kariwala, Senior Analyst (Financial Institutions) at India Ratings and Research told the Finapolis.

He also said that level of interest of foreign players in public sector banks would hinge on valuations as the current limit of 20% FDI remains largely underutilized.

“Foreign ownership could also improve overall efficiency and bring in expertise,” Kariwala said.

Currently, FDI of up to 49% is allowed in private banks on automatic route, while up to 74% needs the government approval. Similarly, foreign holding in public sector banks is allowed up to 20% as of now.

If the proposal is approved, it will help banks, especially public sector lenders, to raise capital at a time when they are reeling under high non-performing assets (NPA) burden.

According to data released by the RBI, the gross NPA of banking sector stood at around Rs 7.5 lakh crore by the end of September quarter of this financial year. Bulk of the bad loans has emanated from the public sector banking space and stood at Rs 7.34 lakh crore. Meanwhile, NPAs stood at Rs 1.02 lakh crore for private sector banks by the end of this period.

Huge NPA in the system has forced banks to create higher provisions towards loan losses, eating into their capital base. Banks are also forced to resolve bad loan accounts taking huge haircuts, which has adversely impacted their profitability.

Against this backdrop, the proposal to increase foreign holdings seems to be driven by the factor of infusing capital in banks, which can in turn lead to higher credit growth in the system.

“Higher FDI in public sector banks can save the government from frequent capital infusion,” Kariwala said. According to a report by credit rating agency Fitch, Indian banks will require around $65 billion of additional capital to meet new Basel III capital norms.

Banking stocks, especially those of public sector banks, have surged around 3% in the last one week owing to reports of higher FDI cap along with sound start to the earnings season.    

Meanwhile, representatives of banking employee association are opposed to any such move of raising FDI limit.

“We are opposed to any such move as banks belong to a sensitive sector in the Indian financial system. Allowing FDI indiscriminately will hurt the banking sector as a whole and will not serve any purpose,” CH Venkatachalam, General Secretary of All India Bank Employees Association (AIBEA) said.  

Print Rate this article:
No rating

Number of views (208)/Comments (0)

Kavita Giridhar Mallya

Debasis Mohapatra

Other posts by Debasis Mohapatra
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.

Subscribe For Free

Get the e-paper free