‘Raising capital will be a challenge’

Capital-raising will be a key theme for Indian banks, as asset quality pressures gradually stabilise and banks look to revive credit growth in support of a recovering GDP outlook, according to Fitch Ratings. However, it added, there will be challenges for State-owned banks in particular, given weak core capitalisation and expectations of slow earnings recovery due to high credit costs. Public sector banks’ large stressed asset stock should weigh on their equity valuations, although the Centre’s expected capital injection will provide a critical buffer for the near term.