Rs 14k-cr infusion in PSBs credit-positive: Moody's

Fail to address economic credit challenges; Benefits to last for short period

Global ratings agency Moody’s on Monday said the government’s move to infuse capital of Rs 14,000 crore into public sector banks would be credit-positive for these banks and help these meet regulatory norms and maintain loan growth to economically important sectors. The agency, however, added these benefits would be short-term ones.

Flagging concern on benefit to credit profiles, Moody’s said the capital infusion didn’t leave the banks better equipped to withstand the risks of further asset quality deterioration.

The government would continue to encourage public sector banks to lend, despite the challenging economic environment, Moody’s said in statement. Last week, the Centre had finalised the allocation of Rs 14,000 crore into 20 public sector banks during 2013-14, through preferential allotment of equity shares.

Moody’s said before the capital infusion, it had estimated just six of the 11 state-owned banks it rated would have tier-I capital adequacy ratios exceeding eight per cent, the least mandated by Basel-II norms, by March 2014. This allocation would raise the capital of all rated banks and allow three additional banks to meet the norms.

The need for greater capital infusion to an increasing number of public sector banks was symptomatic of the fundamental economic and credit challenges capital infusion wasn’t addressing, the ratings agency said.

State Bank of India would get Rs 2,000 crore, while IDBI Bank and Central Bank of India would get Rs 1,800 crore each. Indian Overseas Bank would receive Rs 1,200 crore, while Bank of India would get Rs 1,000 crore. IDBI, Central Bank of India and Indian Overseas Bank would benefit the most from the capital infusion, as their low baseline credit assessment reflect weaker internal capital generation capabilities and higher levels of impaired loans.

In June, public sector banks’ gross non-performing loan ratio rose to a weighted average of 4.3 per cent, the highest in about five years. A similar rise in restructured loans suggested provisioning costs might increase further, the agency added.

In 2012-13, the government had infused Rs 12,500 crore into 13 public sector banks, with eight Moody’s-rated banks receiving Rs 11,000 crore.