Mumbai: The Reserve Bank of India (RBI) has said that banks will need additional capital of up to one and a half percentage points of risk-weighted assets in its assessment of the impact of Covid-19 on lenders. Given that total bank loans are around Rs 104 lakh crore, the capital requirement would be more than Rs 1 lakh crore.
“Preliminary estimates suggested that potential recapitalisation requirements for meeting regulatory purposes as well as for growth capital may be to the extent of 150 basis points (100bps = 1 percentage point) of the common equity tier I (CET I) ratio for the banking system,” the RBI said in its report on ‘Trend and progress of banking in India’ released on Tuesday.
According to the RBI, gross non-performing assets (NPAs) declined from 9.1% as of March 2019 to 8.2% at end-March 2020 and further down to 7.5% in end-September 2020. However, the central bank has said that these bad loan numbers are yet to reflect the Covid stress as the same has been “obscured under asset quality standstill with attendant financial stability implications”. Had this standstill not been there, the asset gross NPAs would have been 0.10% to 0.66% higher as of end-September 2020. In the report, the RBI said that around 40% of borrowers in India availed of the moratorium on loan repayment allowed for six months of the lockdown period, which is higher than estimated by analysts.
Among the lender groups that have extended moratorium, small finance banks and urban cooperative banks have the highest share of borrowers availing of the stay on repayment at 68% and 64% respectively. Among other lenders, finance companies have the highest share with 44.9% of borrowers opting to defer their payments. This was followed by public sector banks (PSBs), which had 41.3% of borrowers availing the moratorium. Private banks and foreign banks had a relatively lower share at 34% and 20% respectively.
The RBI has pointed out that in the case of PSBs, while the government has budgeted Rs 20,000 crore as recapitalisation funds, they need to raise more resources from the market as an optimal capital-raising strategy. “Prudently, some major private sector banks (PVBs) have already raised capital, and some large PSBs have announced plans to raise resources in a staggered manner, depending on the prevailing market circumstances,” the RBI said in its report. As a result of this capital-raising, the capital to risk-weighted assets ratio of banks rose to 15.8% as of end-September 2020 from 14.7% as of end March 2020, and 14.2% at end-March 2019.
Most sectors reported lower outstanding loans under moratorium in August 2020 compared to April 2020. However, micro, small and medium enterprises (MSMEs) registered a marginal increase and the number of MSMEs customers availing moratorium increased to 78% in August 2020, reflecting the stress in the sector. The distribution of moratorium sought in MSME loans indicate that urban cooperative banks (UCBs) bore the brunt of incipient stress, followed by PSBs and NBFCs.