Banks may need Rs 2.6 lakh cr more capital for Basel III: S&P
Mumbai: The banks in India may require additional capital of up to Rs 2.6 lakh crore by 2018 as they migrate to the capital intensive Basel-III framework, Standard & Poor's said Monday.
"We estimate Indian banks will require minimum additional capital of about Rs 69,100 crore to meet the Reserve Bank of India's 8 percent requirement for the common equity tier 1 and capital conservation buffer ratio," it said.
"The additional requirement would go up to Rs 2.6 lakh crore given a tendency for banks to hold higher-than-minimum capital and the limited market for hybrid instruments in India," the rating agency added.
The Basel-III is the new framework designed by central banks across the world in the wake of 2008 financial crisis and primarily aims at having deeper capital buffers to meet any eventuality.
Starting April 1 this year, the country's banks will start implementing the new rules released by the sector regulator Reserve Bank of India and will fully migrate to the revised standards in the next five years.
"The higher capital requirement under Basel III will increase the pressure on Indian banks to raise capital and can lead to some changes in the industry," the S&P statement said, adding that the top-tier banks are better-placed to manage the transition.
The biggest challenge to the banks, a majority of which are state-run, is the public finances, its credit analyst Deepali Seth said.
"The government's large fiscal deficit will limit its ability to inject capital into government-owned banks, which currently have less capital adequacy than the private and foreign banks operating in India," she said.
Additionally, some lenders may struggle to raise the required capital as banks simultaneously enter the market to bring up the required amount, Seth said.
"A few of the smaller banks could become potential takeover targets, which could result in consolidation in India's currently fragmented banking sector," she said.