Less than a week ahead of the Budget, rating agency Moody’s has made a case for increasing the government capital in public sector banks, failing which, it said the PSBs will see negative pressure on their credit profile.
“Unless the government revises its capital infusion plan upward for the upcoming Budget, the banks will see negative pressure on their credit profiles,” senior credit officer of Moody’s, Srikanth Vadlamani, said.
The government has made a provision for Rs 70,000 crore capital allocation for PSBs till 2019 of which, Rs 25,000 crore will be allocated in the current financial year ending March 31.
“But Moody’s has estimated banks’ external capital requirement at Rs 1.45 lakh crore till 2019. While the reported non-performing loans (NPLs) of the 11 public sector banks that we rate registered a significant 0.9-4.1 per cent increase in the most recent quarter ended December 2015, Moody’s view of the true underlying asset quality of these banks has remain unchanged,” Vadlamani said.
Eleven banksMoody’s rates 11 PSBs in India and these registered 0.9 to 4.1 per cent increase in NPLs in the quarter ended December 2015. Moody’s said increase in NPLs was because of the recognition of stress in a few large accounts as well as slippages from restructured accounts.
The increase in NPLs was because of the recognition of stress in a few large accounts as well as slippages from restructured accounts, he said, adding that both of these trends have been factored into Moody’s view on the banks’ asset quality.
The banks’ enhanced NPL recognition in the quarter ended December 2015 was spurred by the RBI directive to recognise specific accounts as NPLs.
Despite this push, Moody’s said, some large corporate exposures with weak financial metrics could continue to remain as standard assets on the banks’ books.
The estimate of Rs 1.45 lakh crore capital need factors in the full extent of the asset quality issues that the banks are facing, and not just the extent of impaired loans that have been recognised so far.