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Banks need $65 bn additional capital to meet Basel III norms: Fitch

Indian Banks will require about a USD 65 billion in additional capital, lower than estimated earlier, to meet the Basel III capital adequacy norms by March 2019 and push loan growth, Fitch Ratings said.

Weak capital positions have a major negative influence on the banks’ viability ratings which will come under more pressure if the problem is not addressed, it added.

“Indian banks are likely to require around USD 65 billion of additional capital to meet new Basel III capital standards that will be fully implemented by the financial year ending March 2019,” Fitch said.

This is lower than the US-based credit rating agency’s previous estimate of USD 90 billion, largely as a result of asset rationalisation and weaker-than-expected loan growth. State-owned banks – which account for 95 per cent of the estimated shortage – have limited options to raise the capital they still require, it said.

“Prospects for internal capital generation are weak and low investor confidence impedes access to the equity capital market,” Fitch said, adding that they are likely to be dependent on the state to meet core capital requirements.

The government is committed to investing only another USD 3 billion in fresh equity for 21 public sector banks (PSBs) over the current and the next fiscal, having already provided most of the originally budgeted USD 11 billion.

“Fitch believes the government will have to pump in more than double, even on a bare minimum basis, if it is to raise loan growth, address weak provision cover, and aid in effective NPL resolution,” it said.

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