Public sector banks (PSBs) will not be able to raise funds from the markets and government will have to provide capital support to them in the near term given their weak solvency position, Moody's has said.
They could see negative pressure on their credit profile if the Government does not revise upwards its capital infusion plans, Moody’s Investors Service VP Financial Institutions Group Alka Anbarasu said.
“Given the weak solvency position of many PSBs, we expect the remedial measures will require substantial external capital. With little chance of the banks accessing the capital markets in the near term, we expect much of the capital support will be required from the Indian government,” she told PTI. PSBs are facing balance sheet problems because of mounting bad loans. They have gross non-performing assets of about Rs 3.7 lakh crore at of end December. They are undertaking asset quality review following the Reserve Bank's diktat and this has led to rise in bad loans and provisioning. RBI has also asked PSBs to clean up their balance sheets by March 2017.
“From a timing perspective, the front-ending of problem loans recognition and provisioning requirement has up fronted the capital requirements of the Indian public banks. Hence, unless the Government revises upwards its capital infusion plan, there will be negative pressure on the credit profiles of these banks,” Anbarasu said.