Banks need Rs 5 lakh crore capital for Basel III norms: Study

The capital requirement of Indian banks would cross the Rs 5 lakh-crore mark while meeting the global Basel III banking norms by March 2019, a study report said on Monday.

Given the credit growth expected in the short-to-medium term, the capital requirement of Indian banks would cross a huge level of Rs 5 lakh crore while meeting the globally mandatory Basel III banking norms by March 31, 2019, a joint study by Assocham-NIBM said.

On the other hand, banks in the public sector may find it very challenging to meet the Basel III requirements as a big chunk of funds is required to be inducted by the central government, which owns a majority stake in them, according to the study titled 'Basel III standards: Concepts, Issues and Challenges'.

With the assumption of at least 20 per cent credit growth in the short-to-medium term, the core equity needs are likely to be Rs 1.75 lakh crore and non-equity requirements through tier-I and tier-II bonds to be Rs 3.25 lakh crore, it said.

Breaking it up further, PSU banks would need to bring in Rs 1.50 lakh crore while those in the private space would eye Rs 0.25 lakh crore.

However, considering the dismal performance by a majority of public sector banks in recent years, it shall be difficult for them to raise the capital of this magnitude from the market, the study by Assocham-NIBM (National Institute of Bank Management) said.

Furthermore, raising non-equity capital through tier-I and tier-II bonds to the extent of Rs 3.25 lakh crore both by the government and private banks is equally challenging.

This is due to the existence of a very limited market for tier-I and tier-II bonds. The success of raising capital through this route lies in the broad development of this market, it added.

While some of the major banks in India may turn to global markets, that route would bump up cost of capital significantly and put more stress on their profitability.

The challenge will be to achieve the most optimal model for implementation of Basel III, one that will fortify the sector while not impairing its efficiency or delivery, the report added.

"In order to achieve this, we need a supportive capital market environment and depth in the corporate bonds market," Assocham President Rana Kapoor said.

The Reserve Bank has set a deadline of March 31, 2019, for implementation of these norms even as banks are fighting NPAs and capital market volatility.