Moody's: Capital infusion credit positive for state-run banks

Ratings agency Moody's Investors Service today said the recent government decision to inject Rs 14,000 crore of capital in state-run banks is credit positive.

"The recapitalisation is credit positive because it improves the odds that public sector banks will meet regulatory capital requirements while maintaining loan growth to economically important sectors," it said in a note.

The government said on October 23 it would inject Rs 14,000 crore in 20 state-run banks through the preferential share allotment route to meet the credit requirement of productive sectors of the economy and maintain the regulatory capital adequacy ratios in public sector banks.

State Bank of India, the largest lender, will get Rs 2,000 crore, while Central Bank of India and IDBI Bank were granted Rs 1,800 crore each.

Changing its view, Moody's said all the 11 banks it rates will meet the minimum 8 per cent core capital requirement under Basel-II norms by end of the financial year. Earlier, it had said only six of the 11 banks would meet the requirement by March 2014.

Commenting on Bank of India, Central Bank and IDBI Bank, Moody's said, "Without the capital injection, we estimate that they would have fallen short of that threshold, assuming loan growth and profit levels similar to those of past years."

The rating agency also pointed out that even after the capital infusion, Indian Overseas Bank and Union Bank of India would still be unable to meet the 8 per cent tier-I capital adequacy norm.