As per a report by Nikkei Asian Review, the world's largest financial newspaper, with a daily circulation exceeding three million, Indian banks have built $13bn war chest to battle bad loans.
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Amid the pandemic situation, RBI has asked lenders for preemptive fundraising as the first recession in 41 years looms. In the current fiscal year, India is expected to fall due to COVID-19 which affected more than 2.6 million people and claimed more than 50,000 lives. India has not seen a recession since 1979.
By the end of March 2021, the ratio of non-performing assets (NPA) to total advances may rise to 12.5% from the previous 8.5% (March 2020). Also, the Financial Stability Report (FSR) of the Reserve Bank of India has predicted that the NPA ratio may rise to 14.7% in case of severe stress. Thus, the Reserve Bank of India has asked the banks to raise the reserve capital.
In July this year, amid the financial strain, the Governor of RBI, Shaktikanta Das advised the banks to raise their reserves as the current pandemic situation may lead to more defaults and subsequently erode banks' cash balances.
As per Shaktikanta Das, 'It has become a lot more important that banks have to improve their governance and sharpen risk management skills. Banks have to raise capital on an anticipatory basis instead of waiting for a situation to arise. It is necessary for both public and private-sector banks to build up adequate capital buffers.'
Axis Bank has released a statement that it has raised 100 billion rupees by issuing shares to the buyers at a price of Rs. 420.1 apiece, becoming the latest bank to join the fundraising spree. Also, HDFC has also raised up to 140 billion rupees via debentures, warrants and shares.
Not only these, the largest private sector bank, but ICICI has also floated its 150 billion rupees funding. Earlier, SBI has also announced that it will raise 250 billion rupees to avoid any capital strain.
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