The capital requirement of Indian banks would cross the Rs 5 lakh-crore mark while meeting the global Basel III banking norms by March 2019, a study report said today. "Given the credit growth expected in the short-to-medium term, the capital requirement of Indian banks would cross a huge level of Rs 5 lakh crore while meeting the globally mandatory Basel III banking norms by March 31, 2019," a joint study Assocham-NIBM said.
Breaking it up further, PSU banks would need to bring in Rs 1.50 lakh crore while those in the private space would eye Rs 0.25 lakh crore. "However, keeping in view the dismal performance by a majority of public sector banks in recent years, it shall be difficult for them to raise the capital of this magnitude from the market," the study by Assocham-NIBM (National Institute of Bank Management said. Furthermore, raising non-equity capital through tier-I and tier-II bonds to the extent of Rs 3.25 lakh crore both by the government and private banks is equally challenging. "This is due to the existence of a very limited market for tier-I and tier-II bonds.
The success of raising capital through this route lies in the broad development of this market," it added. While some of the major banks in India may turn to global markets, that route would bump up cost of capital significantly and put more stress on their profitability. The challenge will be to achieve the most optimal model for implementation of Basel III, one that will fortify the sector while not impairing its efficiency or delivery, the report added.
"In order to achieve this, we need a supportive capital market environment and depth in the corporate bonds market..." Assocham President Rana Kapoor said. The Reserve Bank has set a deadline of March 31, 2019, for implementation of these norms even as banks are fighting NPAs and capital market volatility.