Breaking News

You are here » Indian-Commodity  :  Economy  :  Complete turnaround two years away for PSBs despite capital infusion: Moody's

22-Feb2019

Complete turnaround two years away for PSBs despite capital infusion: Moody's

After the government announced Rs 48,239 crore capital infusion into 12 public sector banks (PSBs) in this fiscal to help them maintain regulatory capital requirements and finance growth plans, global rating agency Moody's Investors Service in its latest report has said that this fresh round of recapitalization of 12 PSBs is positive as it will help them improve their core capital. But, it expressed caution saying that a complete turnaround is still two years away due to the large quantum of legacy bad loans.

Moody's said the capital support to PSBs has been increased from the original plan as banks' capital shortfalls have grown larger than the initial projections. However, these banks are far from a complete turnaround as large volumes of problem-loans will still continue to cap improvements in profitability and capitalisation, constraining their credit profiles. A key hindrance to a faster turnaround of these banks is the slow progress in the resolution of legacy bad loans and the need to build up provisions against those assets.

The agency said although the resolution process at bankruptcy courts (NCLTs) has been initiated for most large NPA accounts, progress has been slower than they anticipated, and a complete cleanup of legacy problem loans could take more than two years. It said farm loan waivers, which three states have granted since November 2018, are a risk because these measures can incentives borrowers to not repay their loans, contributing to more bad loans in the agri lending books. Besides, it said vulnerabilities linger among MSMEs as reflected in the spikes in bad loans.

As per the report, the fresh capital will enable banks to use operating profit to significantly boost provisions for bad loans. It expects state-run banks' capital shortages to shrink substantially in FY20 as their asset quality improves, which will lead to declines in credit costs and gains in profitability. Moody's forecast that state-run banks will require a total of about Rs 20-25,000 crore in external capital in FY20 to maintain CET1 ratios of about 8.5%.


Related News

View all news

CPI inflation hits 6-month high of 2.92% in April

India's retail inflation based on Consumer Price Index (CPI) continued northward journey for third straight month and inched up to a 6-month high of 2.92% in April 2019 due to a spike in food prices, including......

Indian economy to grow at 7% range in current fiscal: Subramanian

Chief Economic Advisor (CEA) Krishnamurthy V. Subramanian has said  that the Indian economy would grow at 7% range in the current financial year (FY20) powered by the effects of the strong structural......

Banks take 57% haircut in 94 cases resolved in FY19: ASSOCHAM-CRISIL study

A joint study carried out by the industry body Associated Chambers of Commerce & Industry of India (ASSOCHAM) and rating agency CRISIL stated that banks have taken a huge 57% haircut in the 94......

Top News

View all news

SRF, NIIT Technologies and United Bank of India to see some action today

SRF has entered into a definitive agreement to sell its Engineering Plastics Business to DSM, the Life Sciences and Materials Sciences Company in an all-cash transaction, amounting to Rs 320 crore. The......

NIIT Technologies concludes sale of 88.99% stake in ESRI India Technologies

NIIT Technologies has concluded the sale of 88.99% equity shares in ESRI India Technologies, India to Environment Systems Research Institute Inc., USA. Consequent to above sale, ESRI India Technologies,......

United Bank of India to raise Rs 1,500 crore by various means

United Bank of India has received approval to raise equity capital not exceeding Rs 1,500 crore in one or more tranches during the financial year by way of Qualified Institutions Placement, Public Issue,......