Directors of State Bank of India (SBI), the country’s largest lender, are slated to meet on 11 June to consider raising up to $1.5 billion in one or more tranches.
The funds will be raised during this fiscal through a public offer and/or private placement of senior secured notes in US dollar or any other convertible currency, the state-run bank said in a regulatory filing on Thursday, a day ahead of its March quarter results.
SBI will join banks looking to raise additional funds for increased provisioning as asset quality is likely to worsen in an economy that’s forecast to contract this fiscal due to disruptions from the coronavirus pandemic. Indian banks are also saddled with bad loans of more than ₹9.5 trillion, according to RBI data.
In a 27 May report, Credit Suisse said banks may need to raise $20 billion in capital over the next one year. It estimates private sector banks to raise $7 billion worth of capital and public sector banks may require $13 billion worth of recapitalization. The investment bank also raised its credit cost or provisioning requirement estimates by 20-60% given the lockdown extensions and unimpressive fiscal stimulus. So far, SBI has disbursed as much as ₹3000 crore to 22,000 micro, small and medium enterprise (MSME) accounts under the Union government’s Atmanirbhar Bharat Abhiyan, which looks to infuse nearly ₹3 trillion into the system by way of guarantees to banks against loans to MSMEs.
Addressing a conference on Wednesday, SBI chairman Rajnish Kumar said while there is uncertainty over the future, it was not a doomsday prediction when it comes to the potential non-performing assets (NPA) in the system. It depends on each bank’s lending practices and risk assessment that will determine the NPA status.
On the recapitalization of public sector banks, Kumar said the government would have to assess the situation depending on the requirement for each bank, risk capital and provisioning required for each bank, and it will also depend on the demand for growth. The government has already infused ₹3.5 trillion into public sector banks in the past few years.