Selective capitalisation may impact smaller banks' growth: S&P

Global ratings agency Standard & Poor's today said the government's move to selectively capitalise state-run banks is a welcome step but may impact the growth of smaller lenders who have been left out.
"In our view, incentivising efficiency is a good long term strategy, however, in the short term, it does accentuate capital constraints for some public sector banks," said Standard & Poor's Senior Director Geeta Chugh in a conference call.
"We do expect these PSBs (public sector banks) will face some challenges in terms of raising capital, particularly given the stock valuations are also poor. It is going to be a constraint for them and could potentially even limit growth for some of these banks," she said.

Last month, the government announced a Rs 6,990-crore capital infusion wherein nine better-performing lenders like SBI, Bank of Baroda, Canara Bank and Punjab National Bank were given priority in capital allocation over others.
Reserve Bank deputy governor S S Mundra had also flagged this as an issue, saying it can aggravate the troubles for those banks which have been left out.
"To my mind, at this point of time, to restrict allocation only to a few banks and to leave the other banks out... Time may not be very appropriate, that is what I feel.

To deprive them of capital at this point of time, I think, would only aggravate the problem and would also have implication on growth... Few challenges which they face at this point of time can be managed if they are able to maintain a growth momentum in coming point of time", Mundra had said.

Chugh explained that there are two kinds of support which the government provides - ongoing basis, like the re-capitalisation, and in times of stress.
"Based on our discussions with the government, we continue to believe that there is a very high likelihood that government will continue to provide extraordinary support to the PSBs if they are in a stress situation," she added.