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On Wednesday, Credit Suisse issued a report saying Indian Banks may need to raise approximately $20 Billion for Additional Capital as this Pandemic Crisis has weakened the credit quality.
The investment bank said it expects private sector banks to raise $7 billion in the capital, while public sector banks may require $13 billion worth of recapitalization.
“We raise our credit cost estimates by 20-60% given the lockdown extensions and unimpressive fiscal stimulus. Private Banks tier-1 is healthy at 13%, and coupled with strong pre-provisioning profitability, adequate to absorb up to 4% additional credit costs," said Ashish Gupta, head of equity research at Credit Suisse. “We, however, expect them to shore up capital buffers and estimate $20 billion in capital-raising by Indian banks in the next 12 months."
On Tuesday, Kotak Mahindra Bank launched a qualified institutional placement issue to raise 7,000 crores from the market.
Other private-sector lenders—such as IDFC First Bank Ltd and RBL Bank Ltd—have also raised fresh funding.
The need to raise additional capital arises from deteriorating asset quality, which is likely to worsen due to the slowdown brought on by the COVID impact.
The economy is expected to contract by as much as 5% in real terms in 2020-21.
Rising risk aversion and accelerating rating downgrades are likely to add to banks’ asset quality stress.
“We estimate 2.5 trillion of debt is already downgraded to ratings that are likely to make refinancing challenge. Two-thirds of this is from NBFCs and these ‘fallen angels’ have 22,000 crores of bond repayments due over the next 12 months," said the report.
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