NEW DELHI: Global rating agency Moody's Investors Service said on Wednesday that the government's Rs 2.11 lakh crore recapitalisation plan for public sector banks is a credit score certain for the sphere.
The executive on Tuesday announced a recent package to respire life into ill public sector banks thru a Rs 2.11 lakh crore infusion that may supply them with much-needed percentage capital for lending and revive funding, a very powerful for activity introduction in Asia's third-largest economic system.
"The quantum of the plan is large enough to comprehensively address these banks' weak capitalization levels and is a significant credit positive as weak capitalization is the main credit weakness for most rated public sector banks," said Srikanth Vadlamani, a Moody's Vice President and Senior Credit Officer.
"For the 11 rated public sector banks, Moody's estimates that their external capital requirements over the next two years would be around Rs 700-950 billion, factoring in the two main drivers of their capital needs - the need to comply with Basel 3 requirements, and for conservative recognition and provisioning of their asset quality problems," says Vadlamani.
He said although most effective the recapitalization bonds and the already announced budgetary toughen are factored in, the capital infusion by the government should be capable of with ease address the capital requirements of the general public sector banks.
In addition, the shortcoming of maximum these banks to get entry to the fairness capital markets has additionally been a key constraint on their capital ranges. With much higher visibility now on these banks receiving ok capital from the government, they may also accordingly regain marketplace get entry to.
He said that there is significant scope for the government to reduce its current shareholdings in these banks and still care for majority ownership.
Details on the program, together with the structure of the recapitalization bonds and allocations to person banks, have no longer but been disclosed. However, the government has announced that this program will likely be applied over the next two years, all through which the infusion of the recapitalization bonds will likely be frontloaded.
Moody's said that In the previous, the government had used the recapitalization bond route to recapitalize public sector banks.
Those tools usually had moderately long maturities and didn't have much marketplace liquidity. A identical structure this time would have some destructive implications for the banks' liquidity and profitability profiles.
"However, given that the overarching credit weakness of the public sector banks currently is their weak capitalization levels, we would see infusion of the recapitalization bonds as a significant credit positive, notwithstanding some of these potential weaknesses in their structure," it said.
It said that a key point of interest would even be the quantity of capital that individual banks will obtain.
"While there may be some differentiation, with banks deemed to be performing well receiving more growth capital, we expect all rated public sector banks to get enough capital to satisfy their Basel 3 capital requirements as well as adequately address their asset quality challenges. Thus, while the extent of improvement may vary, we expect the capitalization profiles of all rated public sector banks to improve," the agency said.
The executive on Tuesday announced a recent package to respire life into ill public sector banks thru a Rs 2.11 lakh crore infusion that may supply them with much-needed percentage capital for lending and revive funding, a very powerful for activity introduction in Asia's third-largest economic system.
"The quantum of the plan is large enough to comprehensively address these banks' weak capitalization levels and is a significant credit positive as weak capitalization is the main credit weakness for most rated public sector banks," said Srikanth Vadlamani, a Moody's Vice President and Senior Credit Officer.
"For the 11 rated public sector banks, Moody's estimates that their external capital requirements over the next two years would be around Rs 700-950 billion, factoring in the two main drivers of their capital needs - the need to comply with Basel 3 requirements, and for conservative recognition and provisioning of their asset quality problems," says Vadlamani.
He said although most effective the recapitalization bonds and the already announced budgetary toughen are factored in, the capital infusion by the government should be capable of with ease address the capital requirements of the general public sector banks.
In addition, the shortcoming of maximum these banks to get entry to the fairness capital markets has additionally been a key constraint on their capital ranges. With much higher visibility now on these banks receiving ok capital from the government, they may also accordingly regain marketplace get entry to.
He said that there is significant scope for the government to reduce its current shareholdings in these banks and still care for majority ownership.
Details on the program, together with the structure of the recapitalization bonds and allocations to person banks, have no longer but been disclosed. However, the government has announced that this program will likely be applied over the next two years, all through which the infusion of the recapitalization bonds will likely be frontloaded.
Moody's said that In the previous, the government had used the recapitalization bond route to recapitalize public sector banks.
Those tools usually had moderately long maturities and didn't have much marketplace liquidity. A identical structure this time would have some destructive implications for the banks' liquidity and profitability profiles.
"However, given that the overarching credit weakness of the public sector banks currently is their weak capitalization levels, we would see infusion of the recapitalization bonds as a significant credit positive, notwithstanding some of these potential weaknesses in their structure," it said.
It said that a key point of interest would even be the quantity of capital that individual banks will obtain.
"While there may be some differentiation, with banks deemed to be performing well receiving more growth capital, we expect all rated public sector banks to get enough capital to satisfy their Basel 3 capital requirements as well as adequately address their asset quality challenges. Thus, while the extent of improvement may vary, we expect the capitalization profiles of all rated public sector banks to improve," the agency said.
Moody’s lauds govt’s bank recapitalisation plan
![Moody’s lauds govt’s bank recapitalisation plan]()
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October 26, 2017
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