India’s banking sector is expected to face capital shortfalls due to coronavirus pandemic-related disruption, Ratings agency Fitch Ratings said on Wednesday.
According to Fitch Ratings, Indian banks are likely to require at least $15 billion in fresh capital to meet a 10 per cent weighted-average common equity Tier 1 ratio under a moderate stress scenario.
“This rises to about $58 billion in a high-stress situation where the domestic economy fails to recover from the coronavirus pandemic-related disruption,” the agency said in a statement.
“State banks will require the bulk of the recapitalisation, as the risk of capital erosion at state banks is significantly higher than for their privately owned peers.”
Fitch Ratings expect the majority of capital injection to come through in FY 22, as bad loan recognition has been pushed back by a 180-day regulatory moratorium.
“However, a clearer picture should start to emerge from December 2020, unless the central bank agrees to a one-time loan restructuring, which would affect the timely recognition and resolution of bad loans,” the statement said.
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