Govt to review capital needs of PSBS after Sept quarter
WAIT AND WATCH NPA status will surface only after the moratorium ends in Aug
NEW DELHI: The finance ministry may assess the capital requirement of public sector banks after the September quarter as there would be greater clarity about a spike in bad loans by that time, people familiar with the matter said.
There is widespread fear that non-performing assets (NPAS) of the banks will witness a surge due to the economic slowdown triggered by the Covid-19 outbreak and resultant lockdowns. This will need higher provisioning by banks as per the Reserve Bank of India (RBI) guidelines.
However, there could be a silver lining if RBI accepts request of loan restructuring for sectors hit badly by the coronavirus pandemic, the people said. The pain of NPA will surface only after the extended moratorium ends in August, the people said, adding it will be appropriate to assess capital requirement only after the second quarter numbers are finalised.
Veteran banker and CII President Uday Kotak had said the public sector banks would need financial support from the government to drive the economy, while private sector banks need to raise capital from various sources to meet the future challenges. “The Covid-19 outbreak and resulting lockdown has impacted adversely the real economy, businesses, individuals, government and financial sector. “While the government is facing the risk of higher fiscal deficit, the banking sector urgently needs the recapitalisation to the tune of ₹3-4 lakh crore to meet the lending requirements,” he had said last month. Ratings agency Fitch has estimated a shortfall of $15 billion (about ₹1.25 lakh crore) by Indian banks to achieve a 10% Weighted Average Common equity tier-1 (CET 1) ratio under moderate stress and in the absence of which banks would show high risk aversion.
The banking sector’s NPAS were expected to increase by 450 basis point through FY21 and FY21 under moderate stress. The government has infused over ₹3.15 lakh crore into public sector banks (PSBS) in the 11 years through 2018-19. In 2019-20, the government proposed to make ₹70,000 crore capital infusion into PSBS to boost credit for a strong impetus to the economy.
However, the government refrained from committing any capital in the Budget 2020-21 for the PSBS, hoping that the lenders will raise funds from the market depending on the requirement. In the last financial year, Punjab National Bank was given ₹ 16,091 crore, Union Bank of India ₹11,768 crore, Canara Bank ₹6,571 crore and Indian Bank ₹2,534 crore. Merging entities like erstwhile Allahabad Bank was provided ₹2,153 crore, United Bank of India 1,666 crore and Andhra Bank ₹200 crore. Besides, Bank of Baroda got a capital infusion of ₹7,000 crore, Indian Overseas Bank ₹4,360 crore, UCO Bank ₹2,142 crore, Punjab & Sind Bank ₹787 crore and Central Bank of India ₹ 3,353 crore. In addition, Lic-controlled IDBI Bank too received additional capital of ₹4,557 crore through the supplementary demands for grants. In all, the government has infused ₹ 65,443 crore in PSBS in the last financial year as both regulatory and growth capital, as per Budget documents.
NEW DELHI: Foreign portfolio investors (FPIS) have pulled out ₹3,741 crore from the Indian markets in just three trading sessions of July, which market analysts attributed to profit booking and appreciation in the rupee over the last few weeks.
The depositories data showed that FPIS withdrew a net sum of ₹3,959 crore from the equities but invested a net ₹218 crore in debt segment between July 1-3.
This translated into a total net withdrawal of ₹3,741 crore during the period under review.
The latest withdrawal has come after investment of ₹24,053 crore by FPIS in domestic markets in June. FPIS turned net buyers after remaining net sellers for t hree c o nsecuti ve months.
“Markets performing well in the recent times, and some appreciation in rupee over the last few weeks, have provided a good profit booking opportunity to foreign investors, which they decided to capitalise on,” Himanshu Srivastava, associate director-manager research at Morningstar India said.
FPIS have been actively trimming their holdings in some stocks and the value of which they find unattractive while they continue to invest in stocks that have reached very attractive valuations in the last 3 months, Harsh Jain, co-founder and COO at Groww, said.
They are also showing a clear inclination towards financial stocks while they’re consistently reducing their exposure to the communication sector, Jain added.
With respect to investment in debt segment Srivastava said “the scenario is showing signs of normalising”.