PSBs will need Rs. 43K crore in FY22 for their growth

Mumbai: State-owned lenders may require up to Rs 43,000-crore capital during FY22 not only for growth but also to replace Additional Tier I (AT-I) bonds where a call option would fall due, a report by credit rating agency Icra says.

However, SBI says that it has already raised Rs 27,000 crore in the current fiscal and it was well capitalised. The bank will be declaring its third quarter's financial result on February 4.

Extension of GoI/RBI-directed funding in the near term and a well-defined medium-term support framework would be the key for sustainable revival. The agency has also advocated for targeted incentives for MSME and housing sectors.

The agency expects PSBs to break even in a worst-case scenario as well with the possibility of a return on equity (RoE) of about 5 per cent in a favourable scenario during FY22, which means their capital requirements will be lower because of the losses.

The capital requirements would, however, arise on account of the estimated Rs 23,000-crore Additional Tier I (AT-I) bonds where a call option would fall due next year.

Hence, public banks will require capital not only for growth but also to replace these bonds to maintain their capital profiles, the report says.

Talking to Bizz Buzz, the managing director of the country's largest lender State Bank of India, Ashwani Bhatia said, "We at SBI have already raised around Rs 27,000 crore in Tier-I (Rs 6,000 crore) & Tier-II (Rs 21,000 crore) so far in the current fiscal and hence we are well capitalised. Also, the bank has registered net profit of Rs 8,000 crore in the first two quarters of the current fiscal. Our capital is currently comfortable and above regulatory requirement."

Factoring in the aforementioned two requirements, Icra estimates the capital requirements for public banks to be negligible in a favourable scenario (RoE of 5 per cent), but up to Rs 43,000 crore in a worst-case scenario.

If the banks can raise a part of the Rs 43,000-crore capital through AT-Is and market sources, it could reduce the government's recapitalisation burden for the coming fiscal.

Though clarity is likely to emerge on this front only in H2 (October 2021-March 2022) FY22, Icra expects the government to allocate some quantum to the PSBs in the Budget itself (unlike last year when they made the announcement later) to provide some additional comfort to the markets.

As on November,'20, as more as 15 PSBs have collectively raised Rs 36,439 crore in FY21. Three private sector banks collectively raised Rs 32,443 crore.

The expected boost to infrastructure spending would kindle demand for infra-focussed NBFCs, however, most of these are public sector undertakings (PSUs).

It said benefits and additional incentives for MSMEs and tax-breaks to home-buyers and builders in the housing sector, especially affordable housing, would also augur well for the sector, which is expected to be faced with asset quality headwind.