RESERVE BANK NEWS

Banks to raise Rs 1,50,000 crore in next 18 months

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Banks have lined up to raise a record Rs 1,50,000 crore from the capital market in the next 12-18 months, against the backdrop of weak capital cushion and the expected increase in stress on asset quality and profitability in the wake of the economic impact of the Covid 19.

Almost all leading banks have announced their plans to raise capital in the last few weeks to beef up their balance sheets and make provisioning. Banks are at the frontline of being adversely impacted by the COVID-19 pandemic as economic contraction reduced corporate earnings and individual incomes, reducing the capacity to repay debts.

RBI Governor Shaktikanta Das had said that building buffers and raising capital will be crucial not only to ensure credit flow but also to build resilience in the financial system in the wake of the pandemic-induced stress.

He also indicated that existing minimum capital requirements for banks may no longer be sufficient enough to absorb likely losses.

Banks have raised their capital requirements as bad loans are expected to rise significantly and profits are likely to be under pressure in coming months, especially after the moratorium ends in August. A big amount may be required to make provisioning, said an official of a nationalised bank.

Credit Suisse had forecast that banks may need $20 billion in additional capital in FY21. Public sector banks (PSBs), which earlier estimated a capital requirement of Rs 10,000-20,000 crore for FY21, have more than doubled their capital requirement. The Centre, on the other hand, had expected PSBs to raise capital from markets and hence possibly did not Budget any capital infusion for 2020-21.