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Indian banks require $20 billion capital provision over next 12 months, says Credit Suisse

Rising risk aversion and rating downgrades are likely to add to banks’ asset quality stress. The virus crisis has taken a toll on the asset quality of banks

May 28, 2020 / 03:23 PM IST

Indian private and public sectors banks may have to raise an additional $20 billion – $7 billion and $13 billion respectively, to provision for weaker credit quality over the next 12 months, as per Credit Suisse.

Credit Suisse also raised credit cost estimates by 20-60 percent “given lockdown extensions and unimpressive fiscal stimulus,” Equity Research Head Ashish Gupta said.

“Private Banks’ tier-1 is healthy at 13 percent, and coupled with strong pre-provisioning profitability, adequate to absorb up to 4 percent additional credit costs (i.e. provisioning requirements). We, however, expect them to shore up capital buffers and estimate $20 billion in capital-raising by Indian banks in the next 12 months,” Gupta stated.

As per the report, an estimated $2.5 trillion debt – a big two thirds from non-banking finance companies (NBFCs) is already downgraded to levels that would make refinance difficult.

Gupta noted that 70 percent of India’s lending capacity is “constrained”, even as PSBs which consist 25 percent of the system credit continue to grapple with non-performing assets (NPAs).


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Bond repayments worth Rs 22,000 crore are also due over the next 12 months – further saddled with moratorium on 30-70 percent of loans.

Difficulties are also expected as securitisation and the European Central Bank markets have also closed up. “NBFCs and small private banks are also pulling back given their rising liquidity constraints," Gupta added.

Ratings downgrades and overall risk aversion are also likely to drag banks’ asset quality as the coronavirus pandemic continues to batter economies, Mint reported.

India’s economy is expected to crunch by 5 percent in FY21 and banks’ moves seem to be in line – Kotak Mahindra Bank on May 26 launched its Rs 7,000 crore qualified institutional placement (QIP), while RBL Bank and IDFC First Bank also recently raised fresh funds.
Moneycontrol News
first published: May 28, 2020 03:23 pm
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