PSU banks' capital requirements for provisioning of bad loans to shoot up: S&P

Standard & Poor's Ratings Services has warned that state-run banks' capital requirements for provisioning of bad loans are likely to shoot up, exposing them to possible downgrades. It said that Indian public sector banks may find it difficult to raise capital, given their currently weak operating performance, which makes it difficult for them to access the equity capital markets.

It said that the PSU lenders are in a weaker position on the capitalisation front than their private sector peers and may find it difficult to raise capital given their weak performance and said that these banks will therefore have to rely more on government support for capital infusions. The ratings agency further said that it would see if the government infuses a large chunk of the Rs 45,000 crore capital infusion by FY19 this fiscal itself.

The rating agency while trimmed down its outlook on Bank of India to ‘negative’ from ‘stable’, it had put Indian Overseas Bank on ‘CreditWatch’ with negative implications and also retained ‘negative’ outlook on Syndicate Bank. S&P expects BoI’s asset quality to continue to weaken over the next 12-18 months, further straining the bank’s capitalisation and profitability. However, it also said that over the longer run, the tighter NPL norms will improve transparency in the Indian banking system and bring them more in line with global practices. They will also pave the way for much-needed reforms in risk management and governance of banks.

Many leading state-owned banks, reported their highest ever quarterly losses after the Reserve Bank of India (RBI) asked banks to recognise select weak loans as non-performing loans over the quarters ending December 2015 and March 2016, and shore up provisioning.