PSBs need Rs 95,000 cr in fresh capital; NPAs may touch Rs8,50,000 cr

India's state-owned banks need Rs95,000 crore in additional funds to keep themselves well capitalised, even as non-performing assets or bad loans of these banks are estimated to touch Rs8,50,000 crore.

The funds are needed for provisioning for these bad loans under the prompt corrective action framework, which in turn will keep credit costs elevated in the current year, according to study by rating agency Moody's Investors Service.

Moody's Indian affiliate ICRA has estimated that gross non-performing assets (GNPA) will increase to Rs8,20,000-8,50,000 crore (GNPA of 9.9-10.3 per cent) by the end of FY2018 as against Rs7,65,000 crore (GNPA of 9.5 per cent) by the end of FY2017.

Moody's said weak capitalisation levels will remain a key credit weakness for public-sector banks in the wake of increasing requirements for equity under Basel-3 norms and the limited ability of the banks to raise external capital.

Banks' option to raise external capital, however, will be limited to government funds as low valuations deny access to capital market funds, the rating agency said, even as it noted that many public sector banks have announced plans to raise external capital (equity and additional tier 1 capital) in FY2018.

The asset quality outlook for the Indian banking sector will remain weak, despite the moderation in the formation rate of fresh nonperforming assets (NPAs), ICRA said. ''In our central scenario, we estimate that the 11 Moody's-rated public sector banks will require external equity capital of about Rs 70,000-95,000 crore, or about $10.6-$14.6 billion,'' says Alka Anbarasu, a Moody's vice president and senior analyst.

The union minister for finance, defence and corporate affairs Arun Jaitley will chair a meeting of CMDs/CEOs of public sector banks on 12 June to review their performance. Major issues on the agenda of the meeting include solutions relating to non-performing assets (NPAs), status of MSE credit, Stand-up India and Mudra Yojana among others.

Other issues on agenda include discussion on financial inclusion and literacy, review of performance of social security schemes, including Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana (PMSBY) and Atal Pension Yojana (APY) etc.

Besides, the one day meeting will also discuss the issues of cyber security, digitalisation of the banking transactions, issues relating to rural development, agriculture credit and education loan etc. Role and preparedness of banks in the implementation of goods and services tax (GST) is also likely to be discussed in the one day meeting of PSBs. GST is going to be rolled out from 1 July 2017.