• Sat. May 14th, 2022

RBI pushes lenders to raise funds on bad debt build-up

ByTina R. Wimmer

Mar 11, 2021
NEW DELHI: The Reserve Bank of India (RBI) is pushing banks and non-bank financial companies (NBFCs) to raise capital to prepare for a potential pileup in bad debt In the coming months.
Private sector lenders such as ICICI Bank, HDFC Bank and Axis Bank have responded by raising over Rs 50,000 crore among them, but their public sector rivals appear to be slow to enter the market, despite the abundance of liquidity in the system due to announced stimulus plans. by governments around the world.
The government recognizes that state-owned banks will also need to raise equity and build capital before they start recognizing loans as non-performing assets (NPA) and also set aside funds for the debt restructuring announced by the RBI, but the Ministry of Finance has not yet asked the banks to settle the details.

“The RBI does not want a repeat of the situation after the financial crisis when some banks were slow to raise funds. If this happens for public sector banks, the government will have to inject additional capital,” a source told TOI. State Bank of India, Bank of Baroda, Union Bank and Punjab National Bank are among the lenders who have started the fundraising process.
Most public sector banks are hesitant to touch equity markets because their valuations have taken a hit. This significantly reduces their leeway to raise capital, as they have to keep the government stake above 51%. For example, Canara Bank’s share price of Rs 103 is almost a third of its 52-week high. The current market capitalization of the bank, after the merger with Syndicate Bank, is Rs 15,000 crore, with a government stake of 78%. If the bank raised Rs 5,000 crore, the government’s stake would drop to 58%.
PSU bank chiefs say the government has insured the capital to the extent required. However, there is uncertainty about when the infusion will take place, which makes planning difficult.
With the Covid-19 loan moratorium due to end in a week, several businesses will have to start repaying loans or queuing outside banks to have them restructured. As strict standards are expected to be put in place, several entities may find it difficult to obtain debt relief, which will force banks to classify them as NPAs and set aside capital to cover losses for the next few quarters. . The RBI itself has warned that NPAs could hit a two-decade high of 14.7% by March. “Raising capital will be crucial not only to ensure the flow of credit, but also to build the resilience of the financial system,” the RBI Governor said. Shaktikanta Das had said recently.