The progressive increase in minimum capital requirements under Basel III may expose half of Indian banks to the danger of breaching capital triggers, according to Fitch Ratings. PSBs are the most at risk, given their poor existing capital buffers and weak prospects for raising capital through market channels, said the credit rating agency.
"Our analysis of 27 Indian banks with outstanding hybrid capital instruments indicates that at end-June 2016 the total capital adequacy ratio (CAR) for 11 banks was at or lower than the minimum of 11.5 percent required by end-March 2019 (FYE19). Of these, six did not have enough capital to meet the minimum required by FYE17," said Fitch Ratings.
The minimum total CAR is a prerequisite for payment of coupons on both legacy and Basel III perpetual debt capital instruments. For Basel III perpetual instruments, coupon deferral is also linked to banks meeting both minimum regulatory common equity tier 1 (CET1) ratio and Tier 1 ratio.
According to the agency, more than half of the banks currently have a CET1 ratio that is below the required 8% minimum that will be applied from FYE19.
Fitch estimates that Indian banks may require around USD90bn in new capital by FYE19 to meet Basel III standards, with the state banks accounting for about 80% of the total. Meeting IFRS 9 accounting requirements could add to the challenges faced by the banks.
The Government has already allocated Rs. 70,000 crore (USD10.4bn) for capital injections into state banks through to FY19 and in July it announced that Rs. 22,900 crore (USD3.4bn) was being frontloaded.
Fitch: PSBs prone to breaching capital triggers
By IndianMandarins - 2016-09-13 10:50:12
The progressive increase in minimum capital requirements under Basel III may expose half of Indian banks to the danger of breaching capital triggers, according to Fitch Ratings. PSBs are the most at risk, given their poor existing capital buffers and weak prospects for raising capital through market channels, said the credit rating agency.
"Our analysis of 27 Indian banks with outstanding hybrid capital instruments indicates that at end-June 2016 the total capital adequacy ratio (CAR) for 11 banks was at or lower than the minimum of 11.5 percent required by end-March 2019 (FYE19). Of these, six did not have enough capital to meet the minimum required by FYE17," said Fitch Ratings.
The minimum total CAR is a prerequisite for payment of coupons on both legacy and Basel III perpetual debt capital instruments. For Basel III perpetual instruments, coupon deferral is also linked to banks meeting both minimum regulatory common equity tier 1 (CET1) ratio and Tier 1 ratio.
According to the agency, more than half of the banks currently have a CET1 ratio that is below the required 8% minimum that will be applied from FYE19.
Fitch estimates that Indian banks may require around USD90bn in new capital by FYE19 to meet Basel III standards, with the state banks accounting for about 80% of the total. Meeting IFRS 9 accounting requirements could add to the challenges faced by the banks.
The Government has already allocated Rs. 70,000 crore (USD10.4bn) for capital injections into state banks through to FY19 and in July it announced that Rs. 22,900 crore (USD3.4bn) was being frontloaded.
