Banks need USD 200 billion in next 5 years to meet Basel III norms, says Fitch

Domestic banks will need US $200 billion additional capital over the next five years to meet Basel III norms for capital adequacy and the demand for funds as growth picks up, Fitch Ratings said on Thursday.

The ratings agency expects improvement in asset quality of the country's banks with pick up in economic growth.

"Progress will be led by improvement in the cyclical sectors, which is likely to benefit from a sustained economic recovery," it said.

Public sector banks reported stressed assets of around 12 per cent in 2013-14, versus around 4 per cent of private banks and 10 per cent for the banking system, according to Fitch.

The agency said it "expects Indian banks to require over US $200 billion in capital as growth picks up and banks progress towards Basel III."

The agency said there was emergence of some early signs of stability in asset-quality at certain large PSU banks.

Fitch expects the trend to gain strength as economic growth picks up pace with the country's real GDP (Gross Domestic Product) growth projected at 5.5 per cent in FY15 and 6.5 per cent in FY16, it said.

"That is against the backdrop of a new government with a clear electoral mandate and a renewed focus on policy reforms, which is likely to set the stage for a cyclical recovery," it added.

It said the capital needs of the country's banks are likely to rise incrementally until the full phase-in of the Basel III regulations in the financial year ending March 2019.

State-run banks, which account for around 75 per cent of assets in the banking system, will require the bulk of this new capital, as they suffer from lower capitalisation, high stressed assets and weak earnings, Fitch said.