Banks ready for a Capital Raise

The top-notch banks of India plan to raise ₹1.5 lac crores within a year

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The leading banks of India have an idea of raising ₹1,50,000 crores from the capital market in the upcoming 12-18 months. This came out as a response to the stressed asset quality and profitability due to the impact of the current COVID-19 crisis. The economic shrinks diminished corporate earnings and individual incomes. As a result, there is an incapacity from the public side to repay their debts.

As per Reserve Bank of India(RBI) governor, Shaktikanta Das, building buffers and raising capital is the priority for proper credit flow and better financial resilience. He also added that existing minimum capital requirements for the banks are lacking when it comes to absorption of the losses.

As per a report of Credit Suisse, banks need $20 billion in additional capital for the financial year 2021. Similarly, Anil Gupta, ICRA ratings stated that due to thin capital cushions and increased stress on profitability and asset quality, PSBs require ₹45,000 – ₹82,500 crore of capital even though the credit growth is 3-4 percent in FY2021.

Private banks have planned a capital raising of ₹75,000-₹1,00,000 crore. Kotak Mahindra Bank has raised ₹7,442 crores. Banks like Yes Bank, ICICI Bank, Axis bank are firm with raising nearly ₹45,000 crores. Through Tier-1 bonds, HDFC is going for ₹50,000 crores.

Government banks like State Bank of India (SBI) will mobilize ₹20,000 crores and as a similar move, Punjab National Bank (PNB) will raise capital of ₹7,000 crores by selling of its shares. Bank of Baroda stands at ₹13,500 crores and Canara bank at ₹6,000-₹8,000 crores.

Despite massive capital infusions, it will not suffice under the current upsurge in Non-performing assets(NPAs).

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