Banks need $20-50 bn capital over next 1-2 yrs
Experts in brokerages and rating agencies believe that as bad loans and credit costs balloon due to the Covid-19 induced slowdown in the economy, Indian banks may need to raise US $20-50 billion capital over the next two years. They also opine that with the government instructing public sector banks to rely on market for capital, their situation is even more worse, considering that they are trading at a discount of 0.2-0.6 times the book value.
While Fitch Ratings had estimated a US$ 50 billion capital requirement (over two years) in a pre-Covid worst case scenario, Credit Suisse has pegged the total capital requirement for India’s banking sector at US$ 20 billion. “Private banks’ Tier1 are healthy at 13% and, coupled with their strong pre-provision profitability, are adequate to absorb up to 4% additional credit cost. SBI’s stake sale in insurance subsidiary to 30% can cover 50% of its capital call, and for ICICI this is two times of capital needed. We expect PSU Banks to need a $13 billion recapitalisation from the government,” Credit Suisse stated.