Govt's recent capital infusion in PSBs not enough, says Moody's

Govt's recent capital infusion in PSBs not enough, says Moody's

Govt's recent capital infusion in PSBs not enough, says Moody's

 Close on the heels of the government infusing about Rs 23,000 crore capital in public sector banks (PSBs) this year, rating agencies have heightened their pitch for more.

Moody’s on Friday said while Rs 23,000 crore will help weaker banks, the need of PSBs is much more than that. Fitch has already said that this capital is not enough to address state-owned lenders’ asset quality pressure.

“The capital infusion will provide some respite for the recipient banks, especially those with weak capitalisation.., unless the government increases the planned amount of capital for infusion, the capital needs of public sector banks remain significantly above the amount budgeted by the government,” Moody’s Investor Service said.

Moody’s said the external capital requirement of rated 11 PSBs is about Rs 1.2 lakh crore as of the beginning of this fiscal year, far exceeds the remaining Rs 45,000 crore the government budgeted for disbursal to the banks by March 2019.

It said the capital infusion is positive for weaker banks such as Indian Overseas Bank (IOB) and Central Bank of India, which received a higher share of the capital allocation as a proportion of their share capital. It will help improve their capitalisation at a time when asset quality pressure and elevated provisioning costs have negatively affected their financial performance.

Fitch had earlier said that recapitalisation was unlikely to address the pressures on the system driven by economic growth in light of the significant asset quality pressures and weak profitability prospects of banks.

According to Fitch, Indian banks required $90 billion (around Rs 6 lakh crore) additional capital, most of which would be accounted for by the public banks to meet Basel III requirements by 2019.

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