Government's plan to infuse Rs 11,336 cr in five public sector banks is credit positive, says Moody's

Mumbai: The government's plan to infuse Rs 11,336 crore in five state-owned banks, including scam-hit PNB, is credit positive and will help these lenders meet the regulatory requirement, according to Moody's. The other lenders include Andhra Bank, Allahabad Bank, Corporation Bank and Indian Overseas Bank.

The government will infuse Rs 2,816 crore in Punjab National Bank (PNB), Rs 1,790 crore in Allahabad Bank, Rs 2,019 crore in Andhra Bank, Rs 2,157 crore in Indian Overseas Bank and Rs 2,555 crore in Corporation Bank.

The Rs 11,336-crore capital infusion is part of the Rs 65,000 crore that the government propose to infuse into the 21 public sector banks this financial year.

"The infusions are credit positive and will strengthen the banks' capitalisation," global rating agency Moody's said in a report today.

These banks' common equity tier 1 (CET1) ratios were the weakest among all public sector banks as of March-end, and were at the risk of breaching the minimum regulatory capital requirement of 5.5 percent under the Basel III norms.

Logo of Moody's. Reuters

Logo of Moody's. Reuters

The rating agency expects these lenders' CET1 ratios to be above 5.5 percent after the new capital infusion. The additional capital will also lower the risk of Andhra Bank and PNB breaching the write-down trigger on outstanding Basel III-compliant additional tier 1 (AT1) securities.

As of FY18, Andhra Bank disclosed Rs 2,200 crore of Basel III-compliant AT1 securities and PNB Rs 5,300 crore.

Based on the contractual terms of the Basel III AT1 securities, the value of the security will be automatically written down should the bank's CET1 ratio fall below 5.5 per cent before March 31, 2019. Post that date, the trigger value steps up to 6.125 percent.

Moody's expects the five banks to have losses in FY19, albeit somewhat smaller than their losses for FY18. The losses are due to the elevated credit costs as the banks continue to provide for their large stock of non-performing loans.

As such, depending on their financial performance during the rest of the year, the agency said these banks may require additional capital support from the government to meet the minimum regulatory thresholds.


Updated Date: Jul 25, 2018 13:56 PM

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