Indian lenders may have to raise equity to fund bad loans, capital erosion as COVID-19 bites

0 Comment(s)Print E-mail Xinhua, July 11, 2020
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MUMBAI, July 11 (Xinhua) -- Indian state-run and private lenders may have to opt for a re-capitalistion plan due to high non-performing assets and capital erosion as an economic fall-out of the COVID-19 pandemic, said the country's Central Bank Governor Shaktikanta Das Saturday.

"Going forward, there are certain stress points in the financial system, which would require constant regulatory and policy attention to mitigate the risks. The economic impact of the pandemic - due to lock-down and anticipated post-lock-down compression in economic growth - may result in higher non-performing assets and capital erosion of banks," Das said at a banking conclave in Mumbai.

A re-capitalization plan for public and private banks has, therefore, become necessary, Das said.

Several Indian private lenders including the country's second-largest lender by assets, ICICI Bank and others like Axis Bank and Yes Bank, have already announced plans to raise 2 billion U.S. dollars each through the issue of various financial instruments while another private lender Kotak Mahindra Bank had already raised 990 million U.S. dollars through a qualified institutional placement.

In May, India's Central Bank had announced a three-month extension of the loan moratorium till August 31, as the nation-wide lockdown in Asia's third-largest economy from March 25 had rendered people jobless, affecting their repayment abilities leading to disruption in cash-flows.

"Asset outcomes are clearly perceived internally by banks to be rather uncertain, and the consensus smart move is raising large sums of money today, even at admittedly off-peak multiples. The belief must be that a `cheap' dilution today will in most cases go a long way in keeping future multiples 'expensive'," said a report by Edelweiss, a domestic stock brokerage house.

With India ranked third after U. S. and Brazil for the number of confirmed cases of COVID-19, Das was skeptical on his medium-term outlook for the Indian economy and termed it as "uncertain".

"The Indian economy has started showing signs of getting back to normalcy in response to the staggered easing of restrictions. It is, however, still uncertain when supply chains will be restored fully; how long will it take for demand conditions to normalise; and what kind of durable effects the pandemic will leave behind on our potential growth," the Governor said. Enditem

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