11 PSBs need Rs.1.2 lakh cr infusion by 2020: Moody’s

The Dollar Business Bureau

The government needs to infuse Rs.1.2 lakh crore into 11 public sector banks (PSBs) by 2020 to strengthen their books, said credit rating agency Moody's.

“The State Bank of India (SBI) and 10 other PSBs (including Bank of Baroda and Bank of India) will have to be infused with Rs.1.2 lakh crore, much higher than the government has planned to inject, to boost their balance sheets,” said Moody’s Investors Service on Friday.

The government has announced to infuse Rs.70,000 crore as capital for 22 PSBs till March 2019. Out of this, an amount of Rs.25,000 crore has already been infused and the government is planning to inject an equal amount during this fiscal.

“In the wake of their results for the financial year 2015-16, our analysis reveals that 11 rated PSBs need capital of about Rs.1.2 lakh crore, much more than the Rs.45,000 crore included in the budget by the government for capital distribution to these banks by 2020,” said Moody’s.

After studying the earnings of these PSBs for the fiscal ended March 2016, the credit rating agency said the quality of assets of these banks will stay under pressure in the coming one year and enhanced provisioning would limit their profitability and constraint internal generation of capital.

The Reserve Bank of India’s (RBI) review of asset quality in the second half of FY 2016, in order to clean up the balance sheets of these banks, has adversely impacted their profitability. The RBI’s review has resulted in higher loan loss provisioning expenses and increased ratios of non-performing loan (NPL).

According to Moody’s, out of 11 PSBs, 8 recorded a net loss for the entire fiscal and the remaining 3 banks witnessed a considerable drop in profits.

“We expect the capitalisation profile of the PSBs to further deteriorate unless the government provides additional capital support,” the ratings agency said.

These PSBs' asset quality will stay under pressure over the next one year, as these banks remain to recognise NPLs from some of the big leveraged business groups, specifically in power and steel sectors.

“As a consequence, increased provisioning expenses will remain to limit profitability and constraint internal capital generation,” the credit rating agency said.