Credit rating agency ICRA has estimated that credit growth will decline to 8-10 per cent if the Centre infuses only ₹70,000 crore in public sector banks.

However, according to ICRA, the requirement is ₹1.3 lakh crore, close to double the amount the Centre plans to infuse in PSBs.

According to Vibha Batra, Group Head, Financial Sector Ratings, ICRA, the infusion of ₹1.3 lakh crore in the form of equity or additional Tier-1 capital from the Centre during the period FY16-19 is needed to maintain Tier-1 capital adequacy at the minimum prescribed level of 9.5 per cent, for the government-forecasted credit growth rate of 13.5 per cent.

ICRA’s assay of Tier-1 capital requirement of PSBs during the FY16-19 period found that a total of ₹3.3 lakh crore was required to be raised.

Breaking this down into two categories — banks with credit rating of AAA/AA+ and AA and below — ICRA’s assessment found that the former category of banks would require to raise ₹2.5 lakh crore and the latter ₹80,000 crore.

Of this, the first category would be able to raise ₹2 lakh crore from two sources — ₹90,000 crore from private players and ₹1.1 lakh crore from government stake dilution to 52 per cent.

The Centre would still have to pump in ₹50,000 crore of additional Tier-1 capital for these stronger PSBs, ICRA observed. However, fund-raising for public sector banks with weaker credit rating of AA or below was seemingly difficult.

To rope in private players as well as dilute the government’s stake at a valuation which they desired seemed difficult, ICRA said. Hence, the government would be left with no choice but to infuse the full requirement of ₹80,000 crore — taking the total government infusion to ₹1.3 lakh crore.

ICRA observed that more than half of the public sector banks’ operating profits went towards meeting credit costs.

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