India Ratings says capital raising big concern for banks in FY16

MUMBAI: Domestic rating agency India Ratings today said the primary cause of concern for the banking sector will shift to capital raising in 2015-16, away from the asset quality woes, which may subside as the economy picks up.

"Asset quality issues will be less of a worry as the growth, even though it is tepid at present, picks up. The big challenge, particularly for the public sector banks, is capital raising," agency's senior director for financial institutions, Ananda Bhoumik told reporters.

He said the yearly quantum of capital allocation for the Basel-III migration will increase from next fiscal onwards and the system as a whole will need over Rs 1.4 trillion of fresh tier-I capital next fiscal.

By 2018-19, banks will have to mop up a whopping Rs 5.3 trillion through various instruments, including core capital as they migrate to the capital intensive Basel III framework, he said.

Bhoumik said the key aspect to watch out for is the capital support which the government announces for state-run banks and added the 27 banks' grouping would need at least Rs 20,000 crore support.

"We will be keenly watching and what the government finally announces will clarify its intentions," he said.

It can be noted that various options, including consolidation of state-run banks and also government decreasing its stake below 51 per cent level, are being discussed at present.

On consolidation, Bhoumik said it is very urgent and the government should show the lead by being "forthright" and initiate action.

The agency gave a stable outlook to the private and large-sized public sector banks like SBI, Bank of Baroda, Punjab National Bank, Canara Bank, Bank of India and, but has a stable/negative outlook on the mid-sized state-run banks.