Bank recapitalisation significant to address growth capital requirements: ICRA

Credit-rating body ICRA while welcoming the public sector unit (PSU) banks recapitalisation program that was announced on Tuesday said it would be "significantly positive" for banks to address their provisioning as well as growth capital requirements.

"The bank recapitalisation plan is significantly positive for the PSBs, given the quantum of the capital infusion, as it will address both the issues of growth capital and capital required to absorb losses arising out of elevated provisioning requirement on NPAs. Most likely, the recapitalisation bonds are likely to be subscribed by the banks, whereby their investments, net worth and hence capitalisation will increase to the extent of recapitalisation bonds received by them. This is also likely to be liquidity non-disruptive and hence have minimal impact on the liquidity conditions and the market yields," said Karthik Srinivasan, Group Head - Financial Sector Ratings, ICRA Limited.

"The applicability of SLR status of these bonds remains to be seen, which could have marginal impact on market yields. The YoY credit growth of the banking sector stood at 7 percent as on September 2017, which has been much lower than the past and has been partially driven by weak capital position of the banks and consequently their ability to lend," he added.

Earlier on Tuesday, Union Finance Minister Arun Jaitley had announced an unprecedented PSU banks recapitalisation program of Rs 2.11 lakh crore, out of which Rs. 1.35 lakh crore will come from recap bonds, and rest from markets and budgetary support.

"To improve the lending capacity of the banks, we have announced the recapitalization programme, which is essential to increase public spending on infrastructure, and that expenditure on infrastructure," Jaitley said at a press conference here.

Adding to this, he said there is a need to increase public investment, for which, bold steps will be taken by the government to recapitalise banks in the country.

However, speaking about the current economic situation, Jaitley said India remained as the world's fastest growing economy for the past three years, thus maintaining very strong economic fundamentals with progressive growth story.

He also added that the government has decided on the steps needed to sustain the growth momentum.