Global rating agency, Moody's Investors Service in its Credit Outlook article, has stated that capital raising by a number of public sector banks (PSBs), including Punjab National Bank (PNB) and Union Bank of India (UBI), is credit positive, as it will improve their loss absorbing capabilities. Apart from this, it noted that the capital raising by PSBs’ signals improved access to the equity capital markets and reduces their dependence on capital infusion from the government.
According to the report, the inability of most of these banks to access the equity capital markets has also been a key constraint on their capital levels. It also observed that the share prices of most PSBs that they rate improved substantially after the Union government unveiled Rs 2.11 lakh crore recapitalisation plan over two years for the country’s 21 PSBs. It also mentioned that recently, Punjab National Bank and Union Bank of India raised Rs 5,000 crore and Rs 2,000 crore through qualified institutional placement to fund expansion plan. Besides, Syndicate Bank raised Rs 1,150 crore.
On a pro forma basis, the rating agency has said that the capital raise will add about 100 basis points to PNBs Common Equity Tier 1 (CET1) ratio, which was 8.1 per cent as of September 2017. It added that UBI and Syndicate each will add 60-70 basis points to their CET1 ratios, which were 7 percent and 7.2 percent, respectively, as of September 2017.