October 03, 2009

Notwithstanding the fact that the loan offtake growth in August was the lowest in seven years at 14.2%, investors continued to flock the counters of banking stocks. Almost all banks recorded their new 52-week highs in Thursday trading on the Bombay Stock Exchange. According to analysts tracking the banking sector, Indian banks have healthy capitalisation levels relative to the regulatory minimum capitalisation levels. They also compare well on capitalisation and leverage levels across the region.

This is largely due to low dependence on hybrid capital qualifying as tier-1 and significant capital raising just before the credit crisis. "We believe Indian banks are adequately capitalised given relatively slower growth expectations (16%-18%) and the industry's 16-17% Return on Equity (RoEs), which should help in conserving capital levels, unless pressures on growth are significantly higher.