Government will have to infuse Rs 1.2 lakh crore into PSU banks by 2020 to bolster their balancesheets and make good the losses suffered by them, Moody’s Investors Service said today.
This is way higher than an additional Rs 45,000 crore capital infusion plan envisaged by the government.
Moody’s said the asset quality of the banks will remain under pressure over the next 12 months and increased provisioning would constrain profitability and limit internal capital generation.
“In view of their results for the fiscal year ended March 2016, Moody’s analysis suggests capital requirements of about Rs 1.2 trillion for its 11 rated public sector banks, far higher than the remaining Rs 45,000 billion included in the government’s budget for capital distribution to the banks until 2020,” it said.
The PSU banks cumulatively suffered losses of Rs 18,000 crore in the last fiscal mainly on account of higher provisioning for bad loans. The government is committed to providing capital over and above the budgeted Rs 25,000 crore for this fiscal.
Moody’s said most bank shares are trading below book value which constrains their ability to raise capital from the capital market.
The weak earnings outlook for PSBs highlights their high level of external capital needs and their capitalisation profiles will further deteriorate unless the government provides additional capital support, it added.
“Furthermore, the banks’ asset quality will remain under pressure over the next 12 months as they continue to recognise non-performing loans (NPLs) from some of the larger leveraged corporate groups, particularly in steel and power sectors,” Moody’s V-P and Senior Analyst Alka Anbarasu said.
In August 2015, the government had budgeted a total of Rs 70,000 crore to be disbursed to the PSBs over four years. As of end March 2016, it had already disbursed about Rs 25,000 crore of this amount.