Fund infusion to help NPA-hit PSBs: Care Ratings

The government's plan to infuse Rs 2.11 lakh crore in PSU banks is a "concrete and timely move" that brings much needed help to public sector lenders that are ailing under asset quality pressures and sluggish credit growth, Care Ratings said today.
"The government's announcement of the Rs 2.11 lakh crore recapitalisation plan for public sector banks (PSBs) comes as a concrete and timely move...and is a credit positive step," Care Ratings said in a statement.
To strengthen capital position of banks for onward lending to private sector, the government yesterday announced that an 'unprecedented' Rs 2.11 lakh crore would be infused in PSBs over two years.

The plan constitutes strengthening the balance sheets of public sector banks through infusion of capital by raising funds through issue of Rs 1.35 lakh crore worth of recapitalisation bonds, Rs 18,000 crore of budgetary support and Rs 58,000 crore to be raised from the markets through share sale.
Majority of the funding will be done through issue of recap bonds by the government to be subscribed by the banks, it said, adding that the government will then infuse these funds as capital in select PSBs as per criteria to be decided at a later stage.
"While the entire recap plan has a timeline of two years, the recap bonds are expected to be front loaded and are likely to be issued during the current financial year. The rating actions in case of individual banks would depend on details of the plan at each bank level," it said.

At present, the country's banking sector remains moderately capitalised. Although, subdued credit growth over the last three years has kept requirement of growth capital low, increase in provisioning due to deterioration in asset quality has impacted the capital adequacy especially for public sector bank.
"This announcement is critical in the light of many PSBs requiring capital infusion to meet the minimum regulatory requirement," it said.
"The size of the current recap plan appears adequate in the light of estimated capital requirements of PSBs and Care Ratings feels that this can serve a dual purpose of cushioning the capital adequacy post provisioning and also providing growth capital to the banks. Overall, this move augurs well for the Indian banking sector," it added.