India’s banks set to raise capital are rushing to reinforce their equity bases, not because they anticipate a spurt in lending, but because they’re worried that rising loan losses will require more capital to be set aside as provisions. State Bank of India (SBI) said it would seek a nod from the shareholders in July to mop up Rs 20,000 crore on Tuesday.
At its July 19 board meeting, Federal Bank will consider a capital raise while Yes Bank is mulling a public offer to raise Rs 8,000 crore, according to Bloomberg, having armed themselves with board approval to raise Rs 15,000 crore. The lender needs Rs 8,800 crore to bring their Tier 1 (CET 1) common equity capital to 10 percent, from 6.3 percent as of March 2020. Kotak Mahindra Bank set to raise capital recently raised Rs 7,442 crore by issuing Rs 1,145 per share of 65 million shares through a qualified institutional placement (QIP).
Credit Suisse estimates that banks set to raise capital need $20 billion in additional capital to tide around the current asset-quality issues. Brokerage analysts pointed out how Rs 2.5 lakh crore of debt has been downgraded to ratings “which are likely to question refinancing. “These companies have around Rs 22,000 crore bond repayments coming up over the next 12 months. In the wake of the pandemic, Reserve Bank of India (RBI) has allowed borrowers a six-month repayment holiday to help them tide through the difficult situation.
Sreedhar Vegesna, partner and leader-Financial Services Advisory, PwC India, believes that after the moratorium lifts, not all retail and corporate customers can repay their dues. If the pandemic continues the supply rate will increase for banks set to raise capital and they will need capital to meet regulatory requirements, “he said.