India PSBs need Rs 35,000- 40,000 cr more capital: S&P

S&P Global Ratings today said that Indian public sector banks require additional capital of Rs 35,000-40,000 crore for growth this year.

While on an aggregate basis, these banks will be able to absorb the expected rise in credit losses due to impact of COVID-19, without breaching the minimum regulatory capital levels, they need capital for credit growth, which is estimated at 4-5% for 2020-21 (AprMar), the rating agency said.

"Besides State Bank of India and a few other large public-sector banks, we believe many public-sector banks will remain dependent on the government--or government-owned enterprises--to raise capital, given low market valuations and a potential crowding out effect stemming from the size of capital raisings already in the market," Michael Puli, credit analyst at S&P Global

Ratings, said.

Large private sector banks and SBI are expected to raise capital "relatively easily." Large banks such as ICICI Bank and Axis Bank have got board approval to raise Rs 15,000 crore each through equity.

Some banks are also lining up to tap the market through issuance of Basel III-compliant additional tier-I bonds, which are also seen as quasiequity instruments.

"We believe top-tier Indian private sector banks are adequately capitalised. They are raising further capital to strengthen their balance sheets, unlike state-owned banks, which generally have only small buffers over regulatory capital," Puli said.

On tier-I bonds, S&P said that the appetite will be only for instruments issued by strong institutions such as HDFC Bank because of the losses investors had to bear following the bailout of YES Bank in March.