Why public sector banks are struggling to raise capital but private banks are having it easy

The Print
August 28, 2020

In its annual report released this week, the Reserve Bank of India (RBI) stressed the criticality of recapitalisation of banks amid the pandemic and economic downturn. But in the last few months, public sector banks (PSBs) haven’t been able to raise funds even as leading private sector banks have done so in anticipation of higher provision needs.
Analysts estimate that PSBs require around Rs 60,000 crore in the current financial year, but these banks are currently struggling to raise capital despite facing asset quality challenges amid the Covid-19 pandemic.
To make matters worse, the government hasn’t allocated any capital for PSBs in this year’s Union Budget, after infusing Rs 2.65 lakh crore in the previous three fiscals.
On their part, the private banks have done better. Earlier this month, ICICI Bank raised Rs 15,000 crore while Axis Bank picked up Rs 10,000 crore from the markets to strengthen their capital ratios. Even the struggling lender Yes Bank raised Rs 15,000 crore last month.
According to RBI estimates, the banking system-level capital adequacy ratio can drop to 13.3 per cent by March 2021 from its year-ago level under baseline scenario, and to 11.8 per cent under the very severe stress scenario.
The gross non-performing assets (NPAs) of banks may also surge 1.5 times above their March 2020 levels under the baseline scenario and by 1.7 times in the very-severe stress scenario.
In its report, the RBI noted, “The minimum capital requirements, which are calibrated on the basis of historical loss events, may no longer suffice to absorb post-pandemic losses.”

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