‘Banks will need `91,000-cr capital in the next 2 years’

INDIAN BANKS will need Rs 91,000 crore in Tier-i capital until March 2019 to grow at a bare minimum pace of 8 to 9 per cent on average, according to India Ratings and Research.

Of the total capital needs, Rs 50,000 crore will have to come from additional Tier-i bonds. “There is an increasing divide between large and smaller (staterun banks), with the former having some access to growth capital, better market valuation, and also some non-core assets to divest, while the latter would only receive bailout capital if required,” the agency said.

Out of the total requirement, Rs 20,000 crore of residual tranches from the government’s ‘Indradhanush’ programme.

However, the agency said its funding gap analysis revealed that 10-odd mid-sized public sector banks (PSBS) were running high-asset liability mismatches which could potentially impact their ability to transmit any easing or compete aggressively on marginal cost lending rate. The potential equity requirement (or the bailout cost) of public sector banks to avoid approaching the point of non-viability to be manageable at Rs 10,000-12,000 crore.

It has estimated Additional Tier-i (AT1) bonds to be Rs 50,000 crore till March 2019. These bonds have seen some tailwinds in FY17 due to favourable treatment from mutual fund and insurance sector regulators while kick-start of an infant secondary market has started improving the pricing. “While the recent RBI guideline improves the coupon serviceability of even the weakest PSBS, a broad-based deepening of the market with active participation of long-term investors such as Life Insurance Corporation and the Employees’ Provident Fund Organisation would likely only come from demonstration of govt-run banks’ ability to manage the capital situation in the medium term and exercise issuer call options,” the agency said.

However, meaningful capexled demand will still be some time away and medium-term growth to be driven by retail and small and medium enterprises segments which have their own set of challenges, it said. “A few banks are already mirroring the delinquencies trends for NBFIS (non-banking financial institutions) in the loan against property segments, although the ratios are still benign.”