Capital Infusion In Five Public Sector Banks Credit Positive, Says Moody’s
The government’s plan to infuse Rs 11,336 crore in five state-owned banks, including scam-hit Punjab National Bank, is credit positive and will help these lenders meet the regulatory requirement, according to rating agency Moody’s.
The government will infuse Rs 2,816 crore in Punjab National Bank, Rs 1,790 crore in Allahabad Bank, Rs 2,019 crore in Andhra Bank, Rs 2,157 crore in Indian Overseas Bank and Rs 2,555 crore in Corporation Bank.
The capital infusion is part of the Rs 65,000 crore that the government proposed to infuse into the 21 public sector banks this financial year.
These banks’ common equity tier 1 ratios were the weakest among all public sector banks as of March-end, and were at the risk of breaching the minimum regulatory capital requirement of 5.5 percent under the Basel-III norms.
The rating agency expects these lenders’ CET1 ratios to be above 5.5 percent after the new capital infusion.
The additional capital will also lower the risk of Andhra Bank and Punjab National Bank breaching the write-down trigger on outstanding Basel-III-compliant additional tier-1 securities.
As of 2017-18, Andhra Bank disclosed Rs 2,200 crore of Basel-III-compliant AT1 securities and Punjab National Bank Rs 5,300 crore.
Based on the contractual terms of the Basel-III AT1 securities, the value of the security will be automatically written down should the banks’ CET1 ratio fall below 5.5 percent before March 31, 2019.
After that date, the trigger value steps up to 6.125 percent.
Moody’s expects the five banks to have losses in the financial year 2019, albeit somewhat smaller than their losses posted in the previous financial year.
The losses are due to the elevated credit costs as the banks continue to provide for their large stock of non-performing loans.
As such, depending on their financial performance during the rest of the year, the agency said these banks may require additional capital support from the government to meet the minimum regulatory threshold.