Indian PSBs may need Rs 95,000 crore capital over next two years: Moody’s

09 Jun 2017 Evaluate

The global ratings agency, Moody’s Investors Service in its latest report has said that stressed assets of Indian public sector banks (PSBs) will increase through 2019 and capitalisation will remain a key credit weakness for state-owned lenders which will need up to Rs 95,000 crore additional capital over the next two years. It also said that PSBs have limited ability to raise external capital and hence infusion by the government remains the only viable source for shoring up capital base, because of the PSBs' low capital market valuations, which would likely continue to deny them the option of raising fresh equity from the capital markets.

The report titled ‘Indian banks’ capitalisation profiles worsen; asset quality outlook remains weak’ has estimated that the 11 banks - including State Bank of India, Bank of Baroda and Punjab National Bank - will need external equity capital of Rs 70,000 crore to Rs 95,000 crore, over a two-year period ending March 2019, to fully meet Basel III capital rules. The other state owned banks Moody's rates are Indian Overseas Bank , Bank of India, Union Bank of India , Canara Bank, Syndicate Bank, IDBI Bank, Oriental Bank of Commerce and Central Bank of India.

The rating agency further said that credit growth was expected to pick up in the near future but credit costs would mostly remain in line with the levels during the fiscal year ended March 2017. It added that the average credit cost for the FY18-19 was expected to be around 2.1%. The need to raise the provision of cover against bad loans would lead to a rise in credit costs.

Referring to the asset quality of banks, Moody’s Indian affiliate, ICRA has said that the asset quality outlook for the banking sector will remain weak, because the pace of NPA resolutions is sluggish, even as the pace of fresh NPA generation slows. Gross Non Performing Assets (NPAs) or bad loans will increase to Rs 8.2 -Rs 8.5 lakh crore (9.9-10.3% of total advances) by the end of 2017-18 as against Rs 7.65 lakh crore (9.5%) at the end of March 2017. Though, it also said that the recent Ordinance issued by the Government of India for amendment in the Banking Regulation Act of 1949 is a positive for the banks, because it highlights the urgency and the willingness of the government to resolve the stressed asset challenges of the banking system.

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