PSU banks to need more capital as safeguard against stress: Fitch Ratings
Public-sector banks (PSBs) stand to face solvency risk unless the government goes for a fresh round of capital infusion into them, Fitch Ratings said in a report on Monday. These banks’ proposed capital raising from private sources is not going to be enough to fully mitigate anticipated risks, the report added.
“The state has not announced anything so far but we expect some infusions eventually to support the banks’ capital-raising initiatives,” analysts at Fitch wrote, pointing to instances of many large PSBs moving to raise their own funds.
Many PSBs are able to meet minimum regulatory thresholds under moderate stress, but most struggle to manage a 6.125% CET-I ratio under high stress, the applicable bail-in trigger for additional tier-I (AT-I) securities from September 2020.
Fresh equity injections have become significantly more imperative as economic recovery remains shaky due to continued acceleration in new coronavirus cases, Fitch said. Private banks have better loss-absorption capacity in the stress test.
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