Their internal generation of capital has suffered mainly due to sharp deterioration in the asset quality possibly due to /adverse selection of assets. The growing pressure on asset quality of PSBs and the threat of rating downgrades will further add pressure on the equity of banks.
Further, there would be further requirement of capital based on supervisory review and evaluation process under Basel Pillar II framework. 12. With higher additional capital requirements, as discussed above, recapitalisation of PSBs could exert significant stress on the government’s fiscal position. There are, however, several potential options available to meet the challenges of mobilization of additional capital.