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Fitch retains negative outlook for banks on weak capital(December 5, 2018)

2 weeks ago 0 comments

Rating agency Fitch maintained a negative outlook for Indian banks due to weak capital and said public sector lenders would need more capital than what the Centre had planned to infuse.

“Fitch maintains a negative sector outlook on Indian banks, to reflect the ongoing struggle of state banks with weak core capitalisation amid rising macro headwinds and poor profitability,” it said.

Fitch estimated that banks would need $38 billion by FY19 to sufficiently meet minimum Basel III capital standards, and achieve 65% cover for non-performing assets, and to leave some surplus capital for growth.

“It implies that the state will have to inject the $11 billion it plans to inject by FY19 and an additional $6 billion it had earmarked as fresh equity issuance from state banks by FY19, with support from asset sales or other sources to comply with minimum Basel III norms.”

Private banks were likely to recover faster than state banks, which shall remain an overhang for the sector. “The rating outlook for most banks mirrors the Stable Outlook on India’s sovereign rating,” Fitch said. The agency also said banks were likely to report weak earnings for FY19 and that some state-run banks might continue to report losses, though the numbers could be slightly better than that seen in FY18.

“Credit costs have moderated in FY19 but ageing provisions are large enough to absorb the bulk of the weak pre-provision profit.” Fitch expects the NPA problem to peak in 2019, but the size and complexity of the sector’s $140 billion NPA stock will take time to resolve.

Source – The Hindu

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