In the recent times the PSU banks have not been able to access capital market which is a "key negative driver of their overall credit profile", Moody's Investors Service said.
Government’s decision to infuse Rs 70,000 crore in PSU banks is a credit positive but “not a game changer” as the amount is relatively small and they will have to access capital from markets to meet their needs, Moody’s said on Thursday.
In the recent times the PSU banks have not been able to access capital market which is a “key negative driver of their overall credit profile”, Moody’s Investors Service said.
Banks will have to demonstrate their ability to raise funds from equity market, it said in a report — Government Capital Infusion Into State-Owned Banks is Credit Positive, But Not a Game Changer.
The government has estimated capital requirement of PSU banks over four years till 2018-19 at Rs 1.80 lakh crore. Of this, the government would infuse Rs 70,000 crore, while the remaining Rs 1.10 lakh crore would be raised from market.
“Although the capital infusion plan is credit positive, we note that the capital amount is a fraction of the overall capital requirements over the next four years,” Moody’s VP and Senior Credit Officer Srikanth Vadlamani said.
The government is aiming to improve the Tier 1 capital ratios for all PSU banks to at least 7.5 per cent by March.
“The banks still need access to the equity markets to materially improve their capital levels,” Vadlamani said.
As per government’s capital infusion plan, Rs 25,000 crore would be infused in 2015-16 and 2016-17 and Rs 10,000 crore each in 2017-18 and 2018-19.
“The front-loading of the capital allocation — with Rs 50,000 crore of the total Rs 70,000 crore coming in the first two years — is also credit positive, while the four-year timespan offers medium-term visibility regarding the PSU banks’ capital positions,” Moody’s said.
For their capital position to stop being a negative driver of their credit profile, PSU banks will have to demonstrate access to equity capital markets, it said.
The recent announcement to infuse Rs 25,000 crore is way higher than the plan in 2015-16 Budget to provide only Rs 7,900 crore equity capital support to PSU banks.
Of the total amount of Rs 25,000 crore, Rs 10,000 crore would be provided to weak PSBs.
“This represents a key and crucial change compared to the capital allocation policy announced in February of this year. By that policy, only those banks which met specified profitability thresholds would be provided capital. Accordingly, only 5 PSU banks qualified to receive capital then,” the report added.