Banks need equity capital of Rs.2.7 trillion for expansion

January 3rd, 2012 - 9:22 pm ICT by IANS  

New Delhi, Jan 3 (IANS) Indian banks will be required to raise equity capital of around Rs.2.7 trillion by 2017 to fund their expansion while complying with the new banking guidelines, ratings firm CRISIL said Tuesday.

“The banks will need to raise equity capital of Rs.1.4 trillion till March 2017 to meet their growth requirements, while complying with the guidelines. This requirement can turn out to be higher by another Rs.1.3 trillion in case the investor appetite is low for non-equity Tier I capital instruments,” Pawan Agrawal, director, CRISIL ratings, said in a report.

He said the Reserve Bank of India (RBI) proposed Basel III guidelines would significantly increase capital requirements of banks in the country.

Under the proposed guidelines the minimum equity capital requirement will increase to 8 percent.

As per the proposed guidelines, the amount of capital that banks need to maintain to adhere to the mandatory regulatory threshold has been raised. Capital adequacy ratio will increase by 2.5 percent to 11.5 percent by March 2017.

For the first time banks will need to maintain a leverage ratio, which will limit their ability to leverage.

In a report, CRISIL said the proposed guidelines would strengthen the Indian banking sector and increase its resilience to systemic shocks.

RBI seeks to enhance both the quantum as well as the quality of capital of Indian banks. The guidelines are more stringent than the proposed guidelines of the Basel Committee on Banking Supervision (BCBS), in terms of higher requirement of common equity capital, stricter leverage ratios, and shorter time span for implementation.

“Despite the increased stringency in the guidelines, Indian banks are comfortably placed to migrate to the new guidelines by the desired timeline of March 2013,” it said.

“However, they will face the challenge of raising additional capital to maintain their growth on an ongoing basis.”

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