Allocation for PSU banks smaller than estimated: Moody's

Tags: News
The government's decision to infuse a mere Rs 11,200 crore in public sector banks in FY'15 is credit negative as the amount will not help banks meet a minimum Tier I ratio of 8 per cent under Basel-III norms, international rating agency Moody's said today.

"The allocation (of Rs 11,200 crore) is credit negative for public-sector banks because it is much smaller than Rs 25,000-36,000 crore (USD 4.1-5.8 billion) that we estimated the banks needed to meet a minimum Tier 1 ratio of 8 per cent in the fiscal year ending March 2015," it said in a report.

In his interim Budget presented on Monday, Finance Minister P Chidambaram proposed to infuse Rs 11,200 crore in PSU banks to enhance their capital in the next fiscal.

Moody's said the Budget allocation is also smaller than the amount the Government has injected into public sector banks in the past three fiscal years.

The Centre infused Rs 14,000 crore in the state-run lenders in this fiscal. In FY12, it had pumped in Rs 17,000 crore, while in FY13 the amount stood at Rs 12,500 crore.

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

As of December 2013, rated Government banks reported an average gross NPL ratio of 4.3 per cent, up from 3.4 per cent in March 2013, and Moody's expects them to continue rising in FY15.

The report highlighted that the 90 basis points increase in the March-December 2013 period in NPL exceeds the average increase of 50 basis points for the fiscal year ended March 2013 and 78 basis points for FY12.

As a result of rising NPLs and lower profitability, provision expense rose to 65 per cent of rated PSU banks' pre- -provision income for the first three quarters of the fiscal year from 49 per cent a year earlier, it said.

Post new comment

E-mail ID will not be published
CAPTCHA
This question is for testing whether you are a human visitor and to prevent automated spam submissions.

EDITORIAL OF THE DAY

  • Sebi’s new listing norms should protect small investors

    There has been a long-standing debate on what should be the liability of individual promoters and directors in case a company does not meet its obliga

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

Chander Mohan Sethi

CMD, Reckitt Benckiser India

COLUMNIST

Roopen Roy

Building smart cities the Indian way

Today more than half of the world’s population lives in ...

Rajgopal Nidamboor

The biology behind cultivated wisdom

We are our habits and our behaviour. We are our ...

Gautam Gupta

Why must innerwear be our best kept secret?

While women’s outerwear rules the marketing roost in India, unfortunately, ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture