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Public sector banks (PSBs) will not be able to raise funds from the markets and the government will have to provide capital support to them in the near term given their weak solvency position, Moody’s has said.
They could see negative pressure on their credit profile if the government does not revise upwards its capital infusion plans, Moody’s Investors Service VP Financial Institutions Group Alka Anbarasu said.
“Given the weak solvency position of many PSBs, we expect the remedial measures will require substantial external capital. With little chance of the banks accessing the capital markets in the near term, we expect much of the capital support will be required from the Indian government,” she said.
PSBs are facing balance sheet problems because of mounting bad loans. They have gross non-performing assets of about ₹3.7 lakh crore at of end-December. They are undertaking asset quality review following the Reserve Bank’s diktat and this has led to rise in bad loans and provisioning.
The RBI has also asked PSBs to clean up their balance sheets by March 2017.
“From a timing perspective, the front-ending of problem loans recognition and provisioning requirement has up-fronted the capital requirements of the Indian public banks. Hence, unless the government revises upwards its capital infusion plan, there will be negative pressure on the credit profiles of these banks,” Anbarasu said.
Government has planned to infuse ₹70,000 crore in PSBs over four years ending March 2019.
Of this, ₹25,000 crore each would come in 2015-16 and 2016-17 and infusion of ₹10,000 crore for each of 2017-18 and 2018-19 fiscals.
The capital infusion roadmap indicates that the overall capital requirements of the banks over the four-year period would total ₹1.80 lakh crore.
The remaining ₹1.10 lakh crore is to be raised by PSBs from the markets.
Moody’s currently rates 11 PSBs, including State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India, Canara Bank and IDBI Bank.
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