Govt's $9 bn capital infusion plan for PSBs credit positive: ICRA, CARE

Earlier, RBI had raised concerns over govt's inadequate capital infusion

The goverment's plan to infuse about Rs 57,000 crore in public sector banks in two years is credit positive for the banks, rating agencies have said. 

V Batra, co-head financial sector ratings, ICRA said this is a significant change in the government's approach and will be benificial for credit profile of state-run banks. 

But Batra cautioned that while the government's move will enhance the banks' ability to lend, PSBs need to stay on course to improve asset quality. 

The statement by Union finance secretary Rajiv Mehrishi comes ahead of presentations that the eight PSBs will make to department of financial services on Wednesday and Thursday in Mumbai. 
 

Mehrishi is accompanying Union finance minister Arun Jaitley, who is on nine-day US tour. 

Mehrishi said, "What we are aiming at is an infusion of about $3 billion in the current year and perhaps twice as much in the next year. So, that is the broad time schedule - whether it will happen in August or January I can't say."

"It doesn't have to wait for the Budget because it is a process that is ongoing and we can always seek additional funds within the supplementaries. So, it doesn't have to wait for the Budget," he said. 

The central bank had earlier flagged concerns over inadequate capital infusion. The amount budgeted for investment in state run banks is not enough, RBI deputy governor M Mundra had said earlier. 

The government has earmarked Rs 7,940 crore in the Budget for recapitalisation of PSU banks for the current fiscal (2015-16). 

D R Dogra, managing director, CARE Ratings said that when the goverment is looking at over 9% growth for the Indian economy, it has to provide enough capital to meet Basel III norms and lending. 

This commitment (for capital infusion) will be positive for credit profile of public sector banks, Dogra said. 

State-owned banks, which have 70% share in lending, are facing bottomline pressures due to sharp rise in non performing loans. This leads to reversal of part of interest income which was booked before accounts became NPA and higher provisions.