Govt’s Rs 11,336 crore capital infusion in 5 PSBs to be credit positive: Moody’s

26 Jul 2018 Evaluate

Global credit rating agency, Moody’s Investors Services in its latest report has said that the government’s decision to infuse Rs 11,336 crore in public sector banks (PSBs) including fraud-hit Punjab National Bank (PNB), is credit positive and will help these lenders meet the regulatory capital requirements. It mentioned that PNB will get the maximum amount at Rs 2,816 crore, followed by Corporation Bank, which will see infusion of about Rs 2,555 crore. The others are Indian Overseas Bank (Rs 2,157 crore), Andhra Bank (Rs 2,019 crore) and Allahabad Bank (Rs 1,790 crore). The infusion is part of the Rs 65,000 crore that the government proposes to infuse into 21 PSBs this financial year.

According to the report, these banks' common equity tier 1 (CET1) ratios were the weakest among all PSBs as of March-end, and were at the risk of breaching the minimum regulatory capital requirement of 5.5 percent under the Basel III norms. It expects these lenders' CET1 ratios to be above 5.5 percent after the new capital infusion. It also said that the additional capital will also lower the risk of Andhra Bank and PNB breaching the write-down trigger on outstanding Basel III-compliant additional tier 1 (AT1) securities. It indicated that as of FY18, Andhra Bank disclosed Rs 2,200 crore of Basel III-compliant AT1 securities and PNB Rs 5,300 crore.

Rating agency further said that based on the contractual terms of the Basel III AT1 securities, the value of the security will be automatically written down should the bank's CET1 ratio fall below 5.5 per cent before March 31, 2019. Post that date, the trigger value steps up to 6.125 percent. It expects the five banks to have losses in FY19, albeit somewhat smaller than their losses for FY18. It pointed out that the losses are due to the elevated credit costs as the banks continue to provide for their large stock of non-performing loans. As such, depending on their financial performance during the rest of the year, it said that these banks may require additional capital support from the government to meet the minimum regulatory thresholds.

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