Indian banks would need Rs 3,90,000-5,00,000 crore capital over the next six years in the wake of Basel III capital regulations announced by the Reserve Bank of India (RBI).
Of this,the requirements for common equity would be Rs 1,30,000-2,00,000 crore, additional Tier-I capital of Rs 1,90,000 crore and for Tier-II Rs 100,000 crore,as per initial estimates by bankers and rating agencies.
A sizeable part around 80 per cent of the common equity requirement relates to public sector banks (PSBs). Of the PSBs total equity requirement,the governments share would be Rs 30,000-80,000 crore,going by the finance ministrys current stance of maintaining 58 per cent shareholding in PSBs.
While the equity target may appear easy at first glance,it may not prove to be so eventually,given that the RBI has also introduced loss-absorption features in additional Tier I capital instruments. Given that such features make the instruments quite complex and even risky,the RBI has not allowed banks to raise Tier I capital via retail investors.
In case banks are unable to mobilise the required additional Tier I and the gap is bridged by raising common equity,the incremental equity requirement may go up to as high as Rs 3,20,000-4,00,000 crore over the next six years. In this,the governments share could be a staggering Rs 1,20,000-1,70,000 crore, rating firm ICRA said. Indian banks raised over Rs 1,00,000 crore in equity during the period 2007-08 to 2011-12,of which around 54 per cent was mobilised by PSBs and 46 per cent by private banks.
Excluding 2007-08,when some large banks took advantage of the buoyancy in the capital markets to raise around Rs 50,000 crore,the equity raised by banks from 2008-09 to 2001-12 was around Rs 50,000 crore. Of this,around 60 per cent was infused by government and Life Insurance Corporation.