State-managed lenders need urgent capital of Rs.1,200 billion over the next five months, and the government will have to assume the bulk of this because of the low valuation of banks of the NPA on the market, says the report.
This is just over double the capital injected into the budget of Rs 53,000 crores for the current fiscal year, said Tuesday the senior director of Crisil, Krishnan Sitaraman.
If the government decides to meet this need, this would put additional pressure on the budget calculations, which would allow it to meet the 3.3% budget deficit target for the current fiscal year. The government has already used over 95% of the deficit target or market borrowings at the end of October.
The report was released even as the government asked the Reserve Bank to lower minimum capital requirements by bringing them closer to global practices – something the central bank does not want to respect.
He also said he rejected the Ministry of Finance's request to transfer 3.6 billion rupees from its reserves on more than 9.5 trillion rupees, which the government wants to use to recapitalize banks in crisis.
The required capital of Rs. 1.2 trillion to meet Basel III standards is 21,000 crores more than the estimated 2.11 trillion Rs announced by the government in October 2017, the report says.
So far, only 1.12 trillion rupees have been injected into these lenders since October 2017, the statement said, adding that only 12,000 crore rupees came from the markets, he said.
Most of the required capital is to be injected into the 11 lenders under the RBI Rapid Remedies System, in which capital depletion and asset returns, coupled with an increase in non-performing assets, have resulted in severe restrictions on normal operations, he said.
"Given their weak performance and low valuations, public banks have a weak capacity to exploit the market, which means that governments will have to provide the essential needs," he said.
Sitaraman said the government-infused 1.5 trillion rupees in the last three fiscal years had only helped them cover the losses of Rs 13 trillion incurred during the same period.
The profitability of state-owned banks has been put to the test because of higher credit costs following the tightening of the RBI standards for recognition and resolution of stressed assets, the report said.
Most of the 21 state banks have recorded huge losses in recent years and many of them will also be in the red, which will weigh heavily on the capital, the report notes.
According to the standards, the capital base of the banks should be 9.5%, including a conservation capital of 2.5%, he added, adding that, if the CWB was excluded, the capital requirement would amount to 40,000 crore of Rs 1.2 trillion rupees.
Meeting the requirements of the BCC, introduced as a result of the global financial crisis of 2008, becomes a daunting task for many state-run banks, and those under PCA have had to recall their additional Tier 1 obligations in recent years. years, thus affecting their own funds, he said.
According to the report, thirteen of the 21 public banks had a Tier I ratio lower than the regulatory norm in June.
Initiatives such as consolidating weaker banks with stronger banks such as the merger between Bank of Baroda, Dena Bank and Andhra Bank will help reduce the additional capital required, said managing director Vydianathan Ramaswamy.
Making the list of other imperatives, he said that the amount of capital injection should increase, that risk-weighted assets should be reduced and that better performing banks should be pushed into the capital market.