Page 8 - Banking Finance July 2020

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NEWS
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NEWS

Banks to raise Rs 1,50,000 to rise significantly and profits are likely compression in economic growth-may
to be under pressure in coming result in higher NPAs and capital ero-
crore in next 18 months months, especially after the morato- sion of banks.

Banks have lined up to raise a record rium ends in August. A big amount may State Bank of India has planned to
Rs 1,50,000 crore from the capital be required to make provisioning," said mobilise around Rs 20,000 crore, while
market in the next 12-18 months, an official of a nationalised bank. Punjab National Bank will raise equity
against the backdrop of weak capital Credit Suisse had forecast that banks capital up to Rs 7,000 crore via share
cushion and the expected increase in may need $20 billion in additional capi- sale to strengthen its balance sheet.
stress on asset quality and profitability tal in FY21. Public sector banks (PSBs), Bank of Baroda's board approved fund
in the wake of the economic impact of
which earlier estimated a capital re- raising plans of up to Rs 13,500 crore
the Covid 19.
quirement of Rs 10,000-20,000 crore and Canara Bank has planned to raise
Almost all leading banks have an- for FY21, have more than doubled their Rs 6,000-8000 crore in capital. For the
nounced their plans to raise capital in capital requirement. The Centre, on five years between 2015-16 and 2019-
the last few weeks to beef up their the other hand, had expected PSBs to 20, the government had infused a to-
balance sheets and make provisioning. raise capital from markets and hence tal of Rs 3.08 lakh crore capital PSBs.
Banks are at the frontline of being possibly did not Budget any capital in- However, this will not be sufficient
adversely impacted by the COVID-19 fusion for 2020-21. given the expected spike in non-per-
pandemic as economic contraction re- forming assets (NPAs).
"With thin capital cushions and ex-
duced corporate earnings and indi- pected increase in stress on asset qual- Private banks have also firmed up plans
vidual incomes, reducing the capacity ity and profitability, we expect PSBs to for capital raising activity of around Rs
to repay debts.
require Rs 45,000-82,500 crore of capi- 75,000-1,00,000 crore. Three private
RBI Governor Shaktikanta Das had said tal even under a scenario of low credit banks - Yes Bank, Axis Bank and ICICI
that "building buffers and raising capi- growth of 3-4 per cent during FY2021. Bank - have already announced plans
tal will be crucial not only to ensure Further, the investor appetite towards to raise Rs 45,000 crore. While HDFC
credit flow but also to build resilience these banks will continue to remain Bank recently obtained approval to
in the financial system" in the wake of weak amid prevailing uncertainties," raise Rs 50,000 crore by way of addi-
the pandemic-induced stress. said Anil Gupta, sector head-financial tional tier-1 bonds, it's unclear how
He also indicated that existing mini- sector ratings, ICRA Ratings. much will it raise in FY21.
mum capital requirements for banks Das had noted that a recapitalisation Kotak Mahindra Bank had raised Rs
may no longer be sufficient enough to plan for PSBs and private banks has 7,442 crore through a qualified institu-
absorb likely losses. become necessary as the economic tional placement issue. Besides, sev-

"Banks have raised their capital re- impact of the pandemic - due to lock- eral small private banks are also gear-
quirements as bad loans are expected down and anticipated post lock-down ing up to raise funds. More banks are

8 | 2020 | JULY | BANKING FINANCE