InvestorQ : Is it true that Indian banks will again require Rs.200,000 crore of capital? Where will the money come from?
Chandralekha Desai made post

Is it true that Indian banks will again require Rs.200,000 crore of capital? Where will the money come from?

Answer
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Priyanka N answered.
1 month ago


That is the figure that is being touted by Moody’s as an estimate of the imminent capital required to fill the funding gap of state-run PSBs in India. Moody’s has estimated that only government banks may require close to Rs.200.000 crore of capital infusion.

The onus is now on the government to work out how, as the majority owner of these banks, it will find ways and means to generate money to recapitalize these banks. This becomes a big worry in the light of the already strained fisc of the Indian government.

In the recent budget, the finance minister had not earmarked any funds for banks clearly hinting that the government wants these PSBs to tap markets and fend for themselves. While larger PSBs are still able to raise capital, the problem is for smaller PSBs.

Moody’s has warned that due to the aftermath of the COVID situation, the already weak capital buffers of the public sector bank will only be further depleted. With limited market access, the only choice or option for these banks will be government support.

If the Indian economy contracts by 8-10% as the consensus estimate appear to be emerging, the banks are likely to be hit by weak business growth as well as a rise in defaults. The strain could be quite high in the MSME and agricultural sector.

Moody’s has pointed out that the impact of COVID-19 may not still be visible in the banking system as the moratorium scheme is in effect till August 31. PSBs are systematically important as they account for nearly 60% of the overall funded assets.