Mumbai : Despite regulatory forbearance measures and government’s capital support, some lenders are at risk of skipping coupon payments on the money raised earlier, an international rating agency warned on Thursday.
“Some banks remain at risk of skipping coupon payments on capital instruments over the next couple of years; despite measures by the Reserve Bank to ease pressures, and capital injections by government into state-run banks,” Fitch Ratings said in a note.
The agency warned that mid-sized banks are “most at risk” of breaching capital triggers. The report did not name any lenders, though. The report said distributable reserves at small-to mid-sized state-run banks were down by one-third in the April-December 2016 period compared to 2014-15 which reflects persistent losses and weak internal capital generation. It further said five state-run banks suffered losses which were equivalent to over 30 per cent of distributable reserves in the period. The Reserve Bank’s recent decision to allow banks to make additional tier 1 coupon payments from statutory reserves may have helped mitigate short-term coupon-deferral risks, but state-run banks’ reserves are “likely to continue falling”, the report said, reports PTI.
The agency said many of the regulatory changes done by the central bank over the past few years are not unique to India, but their timing “suggests the RBI has felt pressure to provide headroom to state banks”. On the government’s capital support, the agency said some banks are also at risk of missing coupon payments on capital instruments as a result of breaching minimum capital requirements.
