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12
September 2016
 |
| Indian Banks(The Total Investment & Insurance Solutions) |
Nearly half of the Indian banks run the risk
of breaching the capital triggers owing to the progressive increase in minimum
capital needs under Basel III norms, said credit rating agency Fitch Ratings. The Total Investment & Insurance
Solutions
According to Fitch Ratings, the
government-owned banks are more at risk due to their poor existing capital
buffers and weak prospects for raising capital from the market. The Total Investment & Insurance
Solutions
Analysing 27 Indian banks with outstanding
hybrid capital instruments, Fitch Ratings said at the end of June, the total
capital adequacy ratio (CAR) for 11 banks was at or lower than the minimum of
11.5 per cent required by end-March 2019 (FYE19). The Total Investment & Insurance Solutions
"Of these, six did not have enough
capital to meet the minimum required by FYE17. The minimum total CAR is a
prerequisite for payment of coupons on both legacy and Basel III perpetual debt
capital instruments," it said. The
Total Investment & Insurance Solutions
According to the credit rating agency for
Basel III perpetual instruments, coupon deferral is also linked to banks
meeting both minimum regulatory common equity tier 1 (CET1) ratio and Tier 1
ratio. More than half of the banks currently have a CET1 ratio that is below
the required eight per cent minimum that will be applied from FYE19. The Total Investment & Insurance
Solutions
Fitch Ratings estimates the Indian banks
would need around $90 billion fresh capital by FYE19 to meet the Basel III
standards, with the state banks accounting for about 80 per cent of the total.
The government has already earmarked Rs 700
billion ($10.4 billion) for capital injections into state banks through to
FYE19 and in July, it announced that Rs.229 billion ($3.4 billion) was being
frontloaded. The Total Investment &
Insurance Solutions
According to Fitch Ratings, capital
injections may not be sufficient to address their ongoing capital needs to meet
required provisions and to support balance sheet growth.
As it stands, state banks are heavily reliant
on the government for new capital. Sharply deteriorating financial profiles
have raised the standalone credit risks of state banks over the last year and
equity valuations have suffered as a result. Most continue to trade at heavy
discounts to their book value, which acts as a significant constraint on
raising new core equity. The Total
Investment & Insurance Solutions
The State Bank of India's proposed $1 billion
issuance of dollar-denominated Additional Tier 1 (AT1) instruments will be the
first cross-border deal, and Fitch Ratings believes the issuance will serve as
a pricing benchmark for other banks keen to access the dollar AT1 market.
The Reserve Bank of India's recent proposal
to allow banks to issue "masala bonds" - rupee-denominated bonds
issued in offshore capital markets - could also help widen the investor pool
and ultimately deepen the market for AT1 bond issuance, it said.The Total Investment & Insurance
Solutions
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