Bank recap plan to help PSUs deal with bloated balance sheets: S&P

S&P Global Ratings on Thursday said the Rs 2.11 lakh crore capital infusion into PSU banks will help to deal with the bloated balance sheet and enable banks to take 'haircuts' on their non-performing loans.

The government plans to infuse capital totalling Rs 2.11 lakh crore ($32.4 billion) into the banks. That's much larger than its previous infusions over the past few years.

This is around 35 per cent of the current Tier-1 capital of public sector banks.

"The government's proposed capital infusions step will help address the banks' bloated balance sheets, which are partly constraining the economy. We believe the government's efforts should enable banks to take necessary 'haircuts' on their corporate nonperforming assets," S&P Global Ratings credit analyst Amit Pandey said.

The non-performing loans in the banking sector are estimated to have touched Rs 10 lakh crore.

Stating that the recapitalisation move will have positive implications, S&P said its impact on credit profile of individual banks will depend on the capital allocated to each bank and the success of the resolution process for stressed assets.

"Our current ratings on public sector banks already benefit from a very high likelihood of government support in the event of distress," Pandey said.

Under the plan unveiled by the government on Tuesday, Rs 1.35 lakh crore of the total infusion will come from the recapitalisation bonds and Rs 76,000 crore from budgetary support and fund-raising in the capital markets over the next two years.

This amount is almost double the government's total infusions into public banks for the past seven years.

S&P had in August estimated that PSU banks would need about Rs 1.7-Rs 2.1 lakh crore capital by March 2019.