Despite a large chunk of the Atmanirbhar Bharat package relying on aggressive lending by banks, the government does not see an immediate need for equity infusion in the public sector banks (PSBs), as their capital to risk weighted asset ratio (CRAR) is expected to stay above the regulatory requirements. Sources said the Finance Ministry believes that after series of capital infusion in PSB s over the last three years, their capital adequacy ratio, or CRAR, is sufficient to absorb any expansion in credit activity.
“At this point, even if you look at the RBI data, it shows that even in a severe stress scenario, the banks’ CRAR will only go down to around 10.1 per cent and the Basel norms are 8 per cent for CRAR. So our banks are adequately capitalised,” a senior Finance Ministry official told The Indian Express.
Many analysts argue that banks, especially state-owned ones, will need significant equity infusion in the medium term as the economic slump resulting from the impact of COVID-19 can potentially create a fresh set of non-performing assets (NPAs).
May need funds if bad loans rise
The government’s view is that PSBs do not require an immediate equity infusion as their CRAR is much above regulatory requirements. Bankers, however, fear that a rise in bad loans later may necessitate further fund infusion.
However, the government believes that since much of the lending is being supported by credit guarantees, there is no risk of fresh NPAs on that front. “With the present level of capitalisation, they can support credit growth in the economy. In any case, a lot of lending which has been recently arranged is backed by full government credit guarantee, so their credit risks reduce as well,” the official said. Banks have enough capital available to support credit expansion, since growth came to a standstill in the last two months.
With the lockdown hitting banking operations in April, credit growth to various segments — including priority sector, housing loan and credit card — of the economy has showed a contraction during the month. While the overall non-food credit growth contracted by 1.2 per cent, or Rs 1.10 lakh crore to Rs 91 lakh crore, loan outstanding in the personal loan segment fell by 2.50 per cent to Rs 24.90 lakh crore, a decline of around Rs 63,000 crore, as per the latest Reserve Bank of India data.
According to a recent report by Credit Suisse, Indian state-owned and private sector banks may need to raise $20 billion in additional capital — $13 billion and $7 billion, respectively — for increased provisioning over the next 12 months as credit quality weakens. Kotak Mahindra Bank is among the private lenders that have recently raised capital from equity markets.
Banks are unlikely to face problems for the next three months as regulatory relaxations — like moratorium on term loan instalments — will provide them a breather till September in recognising NPAs. Post September, NPAs are likely to rise from the current level of Rs 10 lakh crore.
On May 13, the government had announced that emergency credit facility of up to Rs 3 lakh crore will be provided to MSMEs having up to Rs 25 crore outstanding loans and Rs 100 crore turnover. Banks will provide them additional 20 per cent credit backed by 100 per cent government guarantee against these collateral free loans. A facility of providing partial credit guarantee was also announced to help stressed MSMEs get access funding from banks.
📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines