Increase capital infusion in PSU banks: Moody's
The Indian government should increase its proposed capital infusion in public sector banks because of a surge in bad loans after Reserve Bank of India (RBI) decided to clean up banks' balance sheets, according to Moody's Investors Service.
The credit profile of public sector banks will worsen if the government does not increase capital allocation in public sector banks in the upcoming budget, which will be presented on 29 February, Moody's said.
In 2015, the government had proposed Rs.70,000 crore capital infusion over four years, starting with Rs.25,000 crore in the current financial year (201516) and another Rs.25,000 crore in the next financial year. "While the reported NPLs (nonperforming loans) of the 11 public sector banks that we rate registered a significant 0.9%-4.1% increase in the most recent quarter ended 31 December 2015, Moody's view of the true underlying asset quality of these banks has remain unchanged," Srikanth Vadlamani, Vice President and Senior Credit Officer of Moody's said.
Moody's estimates that the 11 public sector banks' external capital requirements will be Rs.1.45 lakh crore for the four fiscal years, from March 31, 2016 to March 31, 2019.