Steps to cut govt stake in PSBs credit positive: Moody's

Move will help PSBs raise up to Rs 1,61,000 crore from the market

Global rating agency Moody's today said the government's decision to reduce its stake in public sector banks to 52% is credit positive.

Last week, the Union cabinet gave its nod to bring down government holding in state-owned banks in a phased manner. However, the government will continue to hold over 51% stake in these banks.

Of the 11 public-sector banks that Moody's rates, the government’s stake ranges from 56% to 84%.

The decision to reduce the stake will help the under-capitalised state-owned banks as government resources to recapitalise these banks are limited, the rating agency said in a statement.

The large fiscal deficit leaves very little money in hands of government to infuse money in PSBs to meet higher capital requirement under Basel III regime. The outlay for investment in state run banks is pegged at Rs 11,000 crore in the current financial year ending March 2015.

The phased reduction in stake will help PSBs raise up to Rs 1,61,000 crore from the market.  

The government will be required to provide Rs 78,900 crore to support the banks’ capital between 2015 and 2019. After accounting for expected dividends from these banks, actual investment bill for government works out to Rs 44,400 crore.

Over the past four years, the government has provided Rs 58,600 crore as capital to support growth in risk-weighted assets that has exceeded their internal capital generation.

Public sector banks account for about 70% of the Indian banking system in terms of loans, deposits and branches.