Govt's fund infusion into PSBs not sufficient to support lending growth, additional $23 bn required in 2019: Fitch

The finance ministry last week announced infusion of Rs 48,239 crore fund in 12 public sector banks in this fiscal to help them maintain regulatory capital requirements and finance growth plans.

Press Trust of India February 27, 2019 14:15:31 IST
Govt's fund infusion into PSBs not sufficient to support lending growth, additional $23 bn required in 2019: Fitch
  • Authorities' approach to the banking sector has clearly shifted towards spurring lending in recent months

  • A large proportion of government's latest round of recapitalisation is still likely to go towards addressing regulatory shortfalls

  • Capital injections have allowed Allahabad Bank and Corporation Bank to leave the RBI's PCA framework

New Delhi: Fitch Ratings on Wednesday said government's $7 billion (around Rs 48,000 crore) fund infusion into public sector banks (PSBs) would not be sufficient to support significantly stronger lending growth.

Fitch estimates that banks will need an additional $23 billion (around Rs 1.6 lakh crore) in 2019, after these latest injections, to sufficiently meet minimum capital standards.

Stating that the authorities' approach to the banking sector has clearly shifted towards spurring lending in recent months, Fitch said these steps, along with capital injections, have eased but not removed capital constraints on state banks' growth.

Govts fund infusion into PSBs not sufficient to support lending growth additional 23 bn required in 2019 Fitch

Representational image. News 18.

“The government's announcement on 21 February that it will soon inject $7 billion into state-owned banks under its recapitalisation plan is likely to help banks meet minimum regulatory requirements, but is not sufficient to support significantly stronger lending growth,” Fitch Ratings said in a report titled ‘Indian government's bank recap may not unlock faster growth'.

The finance ministry last week announced infusion of Rs 48,239 crore in 12 public sector banks in this fiscal to help them maintain regulatory capital requirements and finance growth plans.

“A large proportion of the government's latest round of recapitalisation is still likely to go towards addressing regulatory shortfalls rather than to support asset growth,” Fitch said.

The Reserve Bank of India (RBI) in early January deferred the implementation of the final tranche of the capital conservation buffer (CCB) of 0.625 percent to end-March 2020.

The RBI has also lowered risk weights for some lending to non-bank financial institutions, despite these companies facing increased liquidity stress in the past year.

Fitch, however, said more will be needed as a cushion against future losses at some state banks, as borrower defaults and slow bad loan resolution continue to put pressure on non-performing loan (NPL) provisions.

Fitch said the capital injections have allowed Allahabad Bank and Corporation Bank to leave the RBI's prompt corrective action (PCA) framework, following earlier exits by Bank of India, Bank of Maharashtra and Oriental Bank of Commerce.

“This frees these banks from tight restrictions on their management and growth. However, leaving the PCA framework will not remove the constraints on growth imposed by weak capitalisation, unless the state injects more capital into these banks or there is strong turnaround in profitability that support internal capital generation, which looks unlikely,” Fitch said.

Overall, we estimate that banks will need an additional $23 billion in 2019, after these latest injections, to sufficiently meet minimum Basel III capital standards, achieve 65 percent NPL cover, and leave surplus capital for growth, it said.

“Capital needs have fallen from our estimate of $65 billion (over Rs 4 lakh crore) in September 2017, but progress has not been significant enough to spur loan growth,” Fitch said.

Fitch has a negative sector outlook on Indian banks to reflect the near-term pressures from the sector's NPL stock and elevated credit costs on bank earnings and capitalisation.

Updated Date:

Find latest and upcoming tech gadgets online on Tech2 Gadgets. Get technology news, gadgets reviews & ratings. Popular gadgets including laptop, tablet and mobile specifications, features, prices, comparison.

also read

RBI Assistant 2019 Main Examination to be held on 22 November; for exam centre change, other details check rbi.org.in
India

RBI Assistant 2019 Main Examination to be held on 22 November; for exam centre change, other details check rbi.org.in

The recruitment drive is carried out to fill 926 vacancies of Assistants in various offices of the RBI. Candidates who qualify the Mains examination will be called for a Language Proficiency Test

SBI SO Recruitment 2020: Online registration to fill 92 vacancies ends today, candidates can apply at sbi.co.in
India

SBI SO Recruitment 2020: Online registration to fill 92 vacancies ends today, candidates can apply at sbi.co.in

The positions for which applications have been sought include manager, deputy manager, data trainer, data translator, senior consultant analyst, assistant general manager, data protection officer and risk specialist

'Common man's Diwali in your hands': SC sets 2 Nov deadline for Centre to implement interest waiver
Business

'Common man's Diwali in your hands': SC sets 2 Nov deadline for Centre to implement interest waiver

The court said the Central Government should implement 'as soon as possible' interest waiver on loans of up to Rs 2 crore under the RBI moratorium scheme in view of the COVID-19 pandemic