Indian banks to raise Rs 1.67 trillion over next 5 years: Macquarie

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A massive capital raising is in the offing by Indian banks as they are expected to raise over USD 30 billion (Rs 1.67 lakh crore) over the next five years to cater to their growth requirements and Basel-III implementation charges, says a report.

According to global research firm Macquarie, significant equity dilution is expected over the next five years, as capital requirements for growth as well as transitioning towards Basel-III are very high.

Private sector banks are little better placed than public sector peers, as large chunk of this fund raising is expected to be mopped up by the PSU banks, with SBI group alone is likely to raise around USD 14 billion by fiscal year 2015.

Basel-III implementation kicks in from January 1, 2013 and most PSU banks did get a decent amount of capital from the government and LIC in FY12.

"They (PSU banks) are well capitalised for the time being. We expect large capital raising to happen from 2H FY14," Macquarie said.

Amongst private sector banks, Axis and YES Bank are likely to tap the equity markets first, while ICICI Bank and Kotak Mahindra Bank are comfortably placed, with high levels of Tier-I, and we do not envisage any equity dilution till FY15 for them, the report said.

Indian banks have to comply to Basel III guidelines by March 31, 2018.

Meanwhile, SBI's management had internally estimated that for 20 per cent loan growth till fiscal year 2019, the group would require close to Rs 980 billion (USD 18 billion), with capital-raising largely kicking in post FY15, Macquarie said.

"The government either has to pare down its stake in PSU banks (considering that it has 58 per cent or more stake now in many PSU banks) or think of a holding-company structure to manage the banks' capital needs.''

The new Basel-III norms ask banks to maintain a minimum 5.5 per cent in common equity by March 31, 2015 against 3.6 per cent now, apart from creating a capital conservation buffer consisting of common equity of 2.5 per cent by March 31, 2018.

Moreover, it also hiked the minimum overall capital adequacy to 11.5 per cent by March 31, 2018 against 9 per cent now.