India's state banks shaken by inadequate capital

Some are at risk of breaching their capital triggers, says Fitch.

Fitch Ratings notes that the banks' sharply deteriorating financial positions are adding to capital pressure at a time when progressively higher minimum Basel III capital requirements are being phased in.

State banks' high dependence on the state for core equity is likely to continue. However, there are signs that the overseas additional Tier 1 (AT1) market could gain momentum as long as pricing differences are addressed.

"Asset quality indicators are close to their weakest and Fitch expects recoveries and resolution of outstanding non-performing loans to remain a challenge, although NPL growth should be lower than the sharp spike witnessed in the previous year. The stress prevalent in weak sectors that account for a large share of special mention loans will increase provisioning demand, which will likely pressure earnings against a backdrop of weak growth forecasts," adds Fitch.