Stressed loans to add Rs 1 trillion to banks’ capital needs

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Indian banks may need up to Rs 1 trillion ($ 15.7 billion) to manage the risks from their exposure to debt-stressed companies, Fitch’s Indian unit said, on top of the tens of billions of dollars in capital they need to comply with global banking rules.

State-run lenders, who dominate country’s banking sector with more than 70 per cent market share, will need Rs 93,000 crore to deal with stressed loans, India Ratings and Research said in a research published on Thursday.

That may “significantly increase” the government’s equity injection requirements in the state-owned banks, it said.

“We expect private sector banks and large (state-run banks) to be better placed in handling potential credit cost hikes from these large stressed corporates, given their sufficient operating and capital buffers,” India Ratings analysts wrote in a note.

It added that mid-sized state-run lenders will be the most affected, with their thin margins and weak capitalisation.

Most state-run lenders have high levels of bad loans and their shares are trading below their book values, limiting their ability to attract capital from the market. The government has traditionally injected capital in the state-run lenders.

The government last week outlined a plan to infuse Rs 70,000 crore in the banks over four years to help them meet the Basel III banking rules. It estimated the banks need a total Rs 1.8 trillion through March 2019 for meeting Basel III.

The government expects its reform measures and the banks’ crackdown on bad loans will help improve their valuations, enabling them to raise the remaining Rs 1.1 trillion from the market.

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