The rating agency, in a statement, said banks' credit costs rose sharply following regulatory changes aimed at accelerating bad-loan recognition and led to losses. These losses cumulatively eroded nearly all of the $13 billion in government capital injected in FY18, adding to capital positions which were already weak.
will need $40 billion-$55 billion in additional capital to meet Basel III requirements by 2019, with state banks requiring the bulk of this amount.
Most of the capital is likely to be used for meeting minimum capital requirements and absorbing NPL provisions, around three quarters of which are in the form of Common Equity Tier 1 ( CET1).
The state is likely to be forced into providing most of the required capital since capital raisings remain challenging due to state banks' weak equity valuations, Fitch said.
Indian banks' Q1FY19 performance improved slightly on declining credit costs and a steady loan growth. However, the $151 billion stock of bad loans remains a risk for the sector's weak income base, which is vulnerable to ageing provisions and slower NPL resolution, it added.