Banks need around $90 billion in extra capital by March 2019, says Fitch.
New Delhi: Indian banks need around $90 billion additional capital by March 2019 and one-third of this amount is expected to be raised through bonds, according to a report by ratings agency Fitch.
Indian banks are likely to become more active in the Additional Tier 1 (AT1) market in 2017, after issuing around $2.8 billion so far in 2016, the agency said in its report.
It further said banks need around $90 billion in extra capital by March 2019 to support credit growth and meet steadily increasing regulatory requirements.
“Around one-third of this new capital is likely to be raised through AT1 issuance,” Fitch said.
Under the Basel-III norms, AT-1 bonds come with loss absorbency features, meaning that in case of stress, banks can write off such investments or convert them into common equity if approved by the Reserve Bank of India.
AT-1 bonds qualify as core or equity capital.
“We believe the Indian domestic market is unlikely to show the same sort of depth, and we have doubts that it will be able to absorb all of India’s AT1 paper,” the Fitch report said.
Indian banks would continue to favour domestic issuance in the short term – given the cost advantage – but some of the better-rated banks are likely to be encouraged to follow the example set by State Bank of India in 2016 and turn to the international market next year, it said.