This made us believe that issues related to PSBs’ capital positions would largely be addressed and they would be able to support credit growth while improving their earnings at the same time. This has been reflected in the declaration of regulatory forbearances in the first week of April 2018, intended to shore up the financial year-end reported capital ratios of PSBs, even though they may report weak capital ratios in their subsequent interim results. PSBs’ ability to meet regulatory capital ratios and, consequently, their credit ratings, will remain highly dependent on these banks being able to raise capital from the markets. With expectations of elevated losses, the possibility of breaches of regulatory capital ratios for some banks in the interim reporting period can’t be ruled out. Though all weak PSBs have redeemed their Tier-I bonds, servicing of some bonds (issued under Basel II) continues to be dependent on the capital ratios.

Source: Economic Times May 23, 2018 01:41 UTC