Banks' incremental equity requirement that has arisen out of the Basel III capital adequacy norms “appears manageable”, says credit rating agency, ICRA.
ICRA has estimated that banks would need between Rs 3.9-lakh crore and Rs 5-lakh crore over the next six years, of which, the ‘common equity' portion would be Rs 1.3-lakh crore to Rs 2-lakh crore.
Additional Tier-I would call for another Rs 1.9-lakh crore and Tier-II, Rs 1-lakh crore.
ICRA estimates that out of the total requirement of public sector banks, the Government's share would be Rs 30,000-80,000 crore “going by the Finance Ministry's current stance of maintaining 58 per cent shareholding in public sector banks.”
“The incremental equity requirement appears manageable considering past trends in capital mobilisation,” it says.
ICRA notes that between 2007-08 and 2011-12, banks raised Rs 1-lakh crore in equity. Half of this was in 2007-08, when the capital market was buoyant.
The other half was raised between 2008-09 and 2011-12. And 60 per cent of this came from the Government and the Life Insurance Corporation, ICRA observes.
‘Loss absorption'
The rating agency notes the difficulty in raising additional Tier-I capital given the ‘loss absorption features' introduced by the RBI, which makes the instruments less attractive.
If banks are unable to raise the Rs 1 .9-lakh crore of additional Tier-I capital, the gap would have to be bridged with common equity. In this case, the Government's share could be “a staggering” Rs 1.2 lakh crore and Rs 1.7 lakh crore, ICRA says.