India's banks continued raising capital in the quarter ended June 30, with more expected in the months ahead as they prepare for the 2019 Basel III capital buffer deadline.
Indian banks raised 239.88 billion rupees in the fiscal first quarter, up from the 233.33 billion rupees raised in the prior-year quarter, according to data compiled by S&P Global Market Intelligence. Banks raised more capital in the quarter despite having only 39 offerings for the quarter, compared to 45 in the prior-year period.
The Basel III capital buffer rules, which come into effect in March 2019, require banks to have a minimum capital adequacy ratio of 11.5%, of which 7% must be Tier 1 capital. Private sector banks are in a better position than public sector banks to meet the requirements. Among private sector banks, Kotak Mahindra Bank Ltd. increased its common equity Tier 1 ratio to 16.49% from 16.11% in the prior-year quarter while counterparts such as IndusInd Bank Ltd., ICICI Bank Ltd. and HDFC Bank Ltd. are already meeting the minimum capital requirement.
The picture is not so rosy at public sector banks, which are majority-owned by the government. While Indian Bank recorded a CET1 ratio of 12.05% for the quarter, other public sector banks' CET1 ratios came in at less than 10%. The CET1 ratio at State Bank of India, the country's largest lender by assets, rose to 9.92% from 9.67%.
A number of public sector banks, straining under large amounts of nonperforming assets, have eschewed the markets for funding and instead tapped state coffers.
But others, including Canara Bank, Bank of Baroda, Vijaya Bank, Syndicate Bank Ltd. and Indian Bank, are being encouraged to seek additional capitalization from the market, Business Standard reported June 26. Meanwhile, Bank of India plans to raise 80 billion rupees of capital in fiscal 2018 and State Bank of India plans to raise 110 billion rupees through a share sale.
"Banks have to shore up capital through government infusion, capital raising from markets or monetizing investments in subsidiaries and other financial companies in order to adequately make loan loss provisions and meet Basel III requirements," Anand Shah,
The government has allocated 700 billion rupees to recapitalize banks through 2019, while the finance ministry estimated that public sector banks will need 1.8 trillion rupees in extra capital to be Basel III compliant. Moody's Investors Service estimated in June that 11 of the 21 public sector banks would need equity capital of between 700 billion and 950 billion rupees.
As of Sept. 1, US$1 was equivalent to 63.98 Indian rupees.