State banks are unlikely to be freed from their current gridlock unless NPL resolution is accompanied by additional capital. They have already lost around 300bp in market share to private banks since FY12 as government capital injections have not been sufficient to support growth. Indeed, poor performance has led to a decline in the total CET1 capital of state banks over the last year, despite the injections. Indian banks' loan growth slumped to 4.4% in FY17 - the lowest in several decades - and it is unlikely that state banks will grow at all in the foreseeable future given their capital constraints. Many state banks, particularly smaller ones, will struggle to survive as individual banks, and could be swept up into the government's consolidation agenda.