A report has said that banking sector may require up to Rs 89,000 crore of capital towards incremental provisioning for advances while transiting to the new accounting system Ind-AS. As per reports, the provisioning required for migration to Ind-AS along with asset quality overhang and Basel III transition would surge capital consumption by banks especially PSBs.
Commenting on the issue, India Ratings and Research Official told the media, "Of the Rs 89,000 crore, public sector banks would need Rs 63,100 crore, which is equivalent to an equity write-down of 1.10 per cent of the banks' risk weighted assets and 11.5 per cent of net worth at end-March 2017."
“Private sector banks would also need a whopping Rs 25,800 crore but their higher capitalisation would enable a smooth transition,” he said. As per reports, the rating agency expects a possible blended haircut of around 50 per cent across stressed assets. It assumes a loss given default (LGD) of 50 per cent for all assets across stage 2 and stage 3.