The Reserve Bank of India is pushing the banks and NBFCs to raise the capital to overcome the pile-up of bad debts in the coming months. Private sector lenders like ICICI Bank, HDFC Bank, and Axis Bank were able to raise capital over Rs. 50000 crores but the public sector bank showed a slow enter in the market even though there is liquidity in the system due to various schemes announced by the government.
According to the government, the state-run banks also have to raise equity and blasted their capital base before they start to declare loans as non-performing assets and they also have to set aside funds for restructuring the debt announced by the RBI.
When the public sector banks are slow at raising money to avoid the situation of an increase in NPAs the government has to pump in additional capital. The few public sector banks who have started the process of raising money are State Bank of India, Bank of Baroda, Union Bank, and Punjab National Bank.
Most public sector banks are avoiding to hit the equity markets because their valuations are not in good condition. This substantially reduces the headroom for them to raise capital and the public sector banks also need to retain government stake at over 51% as when the market capital share increases the holdings of the government would reduce.
With the loan moratorium due to Covid-19 scheduled to end in a week, many companies will have to start repaying loans or queue up before banks to restructure the loan statement. It is expected that strict norms are to be put in place due to which many entities may find it difficult to get a debt relief, which will force the banks to classify the loans as NPAs and to cover the losses they would have to pay with the capital which is kept aside for the coming quarters. The RBI has also warned about the NPAs could hit a two-decade high of 14.7% by March. Hence, by raising the capital the credit flow can be ensured by which the financial system can be also built.
