Feb 17, 2016 12:29 PM IST | Source: CNBC-TV18

Banks need Rs 2.3 trn by 2019 to meet Basel, growth target: S&P

Deepali Seth Chhabria of S&P Ratings Services says the banking system requires capital of Rs 2.3 trillion by 2019 to meet fund requirements as per Basel and for growth

Deepali Seth Chhabria of S&P Ratings Services feels the Indian banking system will see the pain of stressed assets for at least one more quarter. Thereafter, lot will depend on how cohesively the government and Reserve Bank of India works to provide support.

As per S&P’s assessment, the banking system requires capital of Rs 2.3 trillion by 2019 to meet fund requirements as per Basel and for growth, Chhabria says.

S&P has a negative outlook on Syndicate Bank and Bank of India, which indicates a one-third chance of the banks being downgraded and a ‘credit watch’ rating on Indian Overseas Bank, which means that the ratings will largely depend on how much capital is infused by RBI into the bank and whether or not the bank will be able to meet regulatory requirements.

Below is the verbatim transcript of Deepali Seth Chhabria’s interview with Reema Tendulkar & Nigel D\\'Souza on CNBC-TV18.

Nigel: I was just going through your report and in fact we have the Budget that is coming out. Talking about capital requirement could you tell us what is that capital requirement number you are looking forward to in the Budget and also could you breakdown that number for us?

A: The capital requirement that the banks needs, we had done the assessment sometime back and as per that the requirement is at about 2.3 trillion. This requirement is not immediate; it was over a period of 2019. It is both for the Basel requirement and for growth.

That said the current Reserve Bank of India’s move has led to up fronting of this capital requirement. So, a lot of banks are facing stress, making losses and because of that the capital requirement that they need is shoring up.

Reema: In the Budget what is the expectation? How much in terms of banking recapitalisation could be provided?

A: The Finance Minister has recently reiterated that the government’s commitment is there to recapitalised banks. However, it needs to be seen that how conclusively will they be coming up with the plan and resolving these issues and whether or not the banks will be able to meet the regulatory requirements which is likely to increase this 7.6 to 5 as on March 2016.

Nigel: Could you tell us how many more quarters are we expected to see these big losses coming in from these banks because some have indicated we have a quarter or two more of pain left?

A: We hear different opinion from different banks. What we understand is that the Reserve Bank of India has asked banks to classify non performing loans (NPLs) in December and March quarter and to provide for NPLs over these periods. So, at least one minimum quarter of pain is expected. That said much will depend upon bank to bank upon how they recognise and how are their portfolio.

Reema: You have already revised your rating on Bank of India (BOI), what is the probability of you downgrading your assessment of the any of the four banks that you have highlighted as vulnerable, Syndicate Bank, Indian Overseas Bank (IOB) as well as IDBI?

A: We have Syndicate Bank and Bank of India on negative outlook. Outlook would mean that there is a one-third probability that these banks rating could go down. In terms of IOB we have them on credit watch. Credit watch means that we are waiting for certain clarity. We are waiting for clarity in terms of how much government would pump in money into them or whether or not they will breach the regulatory requirement. So, that issue will be resolved in the next four months for us in case of IOB. .

Nigel: Then how will lower rating impact the working of these banks?

A: I don’t think that the rating directly would have an impact on the working. In fact if they are having operating losses that is what leads to the downgrades.

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