The government’s Rs 23,000-crore equity infusion will provide some respite to the public sector banks (PSBs), but their capital needs are significantly higher than the budgeted amount, Moody’s Investors Service has said.
The firm estimates that the 11-rated PSBs need Rs 1.2 lakh crore capital to shore up their balance sheets, which far exceeds the Rs 45,000-crore budgeted for disbursal to the banks by March 2019.
“The capital infusion will provide some respite for the recipient banks, especially those with weak capitalisation,” Moody’s said, adding the infusion is positive for banks, but their capital needs remain elevated.
Earlier this week, the government announced a Rs 22,915 crore capital infusion into 13 PSBs. This is the first tranche of infusion and more funds would be provided based on their performance.
“The capital infusion is positive for weaker banks such as the 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, and will help improve their capitalisation at a time when asset quality pressure and elevated provisioning costs have negatively affected their financial performance,” it said.
Indian banks, especially PSBs, operate in a challenging environment.
The asset quality of PSBs is under pressure because they continue to recognise non-performing loans (NPLs) from the larger leveraged corporates, especially in the steel and power sectors.
“In addition, slippages from the restructured loan book will contribute to the rise in NPLs. As a result, provisioning expenses are likely to remain elevated, constraining profitability and limiting the banks’ internal capital generation,” Moody’s said.
The government had last year announced it will infuse Rs 70,000 crore into state banks over four years while they will have to raise a further Rs 1.1 lakh crore from the markets to meet their capital requirements in line with global risk norms Basel-III.
In line with the blueprint, PSU banks are to get Rs 25,000 crore each in 2015-16 and 2016-17 fiscal. Besides, Rs 10,000 crore each would be infused in 2017-18 and 2018-19.
Moody’s said the external capital requirement of rated 11 PSU banks is about Rs 1.2 lakh crore as of the beginning of this fiscal year, which far exceeds the remaining Rs 45,000 crore the government budgeted for disbursal to the banks by March 2019.
“Therefore, 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,” it said.
Out of the Rs 22,915 crore infusion, State Bank of India (SBI) received Rs 7,575 crore followed by IOB (Rs 3,101 crore) and Punjab National Bank (Rs 2,816 crore).