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Moody’s Thoughts on External Equity Capital to SBI

The top 11 Indian public sector banks, including the country’s largest lender, State Bank of India, will need external equity capital of about Rs 70,000-95,000 crore over the next two years, Moody’s Investor Service, wholly owned credit rating agency subsidiary of Moody’s, said on Thursday, 8th june 2017.

The capital requirement is substantially higher than than the remaining Rs 20,000 crore budgeted by the government towards capital infusion until March 2019. “Weak capitalisation levels will remain a key credit weakness for Moody’s-rated Indian public-sector banks, particularly in the context of the increasing requirements for equity under Basel III, and the limited ability of the banks to raise external capital,” Alka Anbarasu, vice-president and senior analyst at Moody’s, said.

In 2015, under the Indradhanush scheme, the government had said it would infuse rs 70,000 crore in state-run banks over the next four years, while the banks would have to raise a further Rs 1.1 lakh crore from the markets to meet their capital requirement in line with global risk norms.

Gross non-performing assets of Indian banks is likely to increase to Rs 8.2-8.5 lakh crore by the end of the fiscal year ending March 2018, Moody’s Indian affiliate Icra said.

In May, the government cleared an ordinance to amend the Banking Regulation Act, giving wide-ranging legislative powers to the Reserve Bank of India to issue directions to lenders to initiate insolvency proceedings for the recovery of bad loans.

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