Indian Banks need Rs 6 lakh crore as capital under Basel 3

Mumbai: Indian banks would require around $90 billion (Rs 6 lakh crore) in new capital (using FYE16 financials) by 2019 to meet Basel III standards and this is likely to put almost half of Indian banks in danger of breaching capital triggers.

Of these state banks are the most at risk, given their poor capital buffers and weak prospects for raising capital through market channels says Fitch India Ratings.

The state banks account for about 80 per cent of the total requirement largely by 2018 and the rest by 2019. The government has already earmarked Rs 70,000 crore  ($10.4bn) for capital injections into state banks through to FYE19, and it announced in July that '22,900 crore bn ($3.4bn) was being front-loaded. But the capital injections may not be sufficient to address their ongoing capital needs to meet required provisioning and to support balance sheet growth.

The minimum total capital adequacy ratio (CAR) is a prerequisite for payment of coupons on both legacy and Basel III perpetual debt capital instruments.

Therefore, the risk that capital triggers at some state banks could be breached will rise as minimum capital requirements progressively increase.

To improve market  access for funds, Fitch believes more capital will be needed from the government. Fitch Ratings’ analysis of 27 Indian banks with outstanding hybrid capital instruments indicates that at end-June 2016, the total CAR for 11 banks was at or  lower than the minimum of 11.5 per cent required by FY19. Of these, six did not have enough capital to meet the minimum required by FYE17.