Capital allocation for lenders in budget is credit negative: Moody's

Government's allocation of Rs 11,200 crore for capital injection into state-run banks is credit negative as it is much smaller than estimated requirements, Moody's Investors Service said.

The rating agency, in a report dated Thursday, said it estimates lenders would need Rs 25,000-36,000 crore to meet a minimum Tier 1 ratio of 8% in the fiscal year ending March 2015.

"Indian public-sector banks' need for significant external capital is a result of an increase in non-performing loans (NPLs) owing to the country's slowing economy and infrastructure bottlenecks, and profitability that is insufficient for internal capital generation to fund loan growth," it said.

Last Monday, the government unveiled its interim budget for the fiscal year starting in April, allocating Rs 11,200 crore for capital injection into public-sector banks.

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