Amid weak solvency position, Moody's Investors Service has said that the government will have to provide capital support to Public sector banks (PSBs) in the near future, as they will not be able to raise funds from the markets. It added that 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”.
Moody’s further stated that it could see negative pressure on PSBs credit profile if the government does not revise upwards its capital infusion plans as 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. PSBs are facing balance sheet problems because of mounting bad loans. They have gross non-performing assets of about Rs 3.7 lakh crore at end of December.
Government has planned to infuse Rs 70,000 crore in PSBs over four years ending March 2019, of this Rs 25,000 crore each would come in 2015-16 and 2016-17 and infusion of Rs 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 be total Rs 1.80 lakh crore. The remaining Rs 1.10 lakh crore is to be raised by PSBs from the markets.