Global rating agency, Moody's reacting to the latest government proposal of fund infusion in public sector banks has said that government’s decision to infuse Rs 70,000 crore in PSU banks is a credit positive but “not a game changer” as the amount is relatively small and they will have to access capital from markets to meet their needs.
In its report the rating agency said that front-loading of the capital allocation -- with Rs 50,000 crore of the total Rs 70,000 crore coming in the first two years -- is also credit positive, while the four-year time span offers medium-term visibility regarding the PSU banks' capital positions. The report has said that this represents a key and crucial change compared to the capital allocation policy announced in February of this year. By that policy, only those banks which met specified profitability thresholds would be provided capital.
Moody’s however cautioned that the banks still need access to the equity markets to materially improve their capital levels and pointed that in the recent times the PSU banks have not been able to access capital market which is a “key negative driver of their overall credit profile.” It further said that for their capital position to stop being a negative driver of their credit profile, PSU banks will have to demonstrate access to equity capital markets.
Government recently announced that it would infuse Rs 70,000 crore in the PSU banks in next four years, while the remaining Rs 1.10 lakh crore would be raised from market. As per government's capital infusion plan, Rs 25,000 crore would be infused in 2015-16 and 2016-17 and Rs 10,000 crore each in 2017-18 and 2018-19.
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