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The Cabinet decision to allow private capital by diluting government stake in public sector banks is credit positive for undercapitalised banks, according to Moody’s Investor Service.
“The ability to raise private capital that dilutes the government’s stake is credit positive for the undercapitalised public sector banks because government resources to recapitalise banks are limited,” Moody’s said in a statement.
On December 10, the Cabinet said that it would allow government ownership in public sector banks to fall to 52 per cent as banks raise capital to meet Basel-III requirements, which will steadily rise until 2019.
“In the 11 public sector banks we rate, the Indian Government’s stakes range from 56 per cent to 84 per cent. Public sector banks account for about 70 per cent of the Indian banking system in terms of loans, deposits and branches.
The Cabinet stopped short of allowing public sector banks to reduce their government stakes below 51 per cent, a level that would jeopardize government control of the banks,” Moody’s said.
Phased reduction The Cabinet said a phased reduction in the government’s stakes in public sector banks to 52 per cent would help raise up to ₹1.61 lakh crore from the market.
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