State-Owned Banks Erase Gains On Likely Cut In Capital Infusion In FY17
Nifty PSU Bank index drops nearly 2 percent post news on lower capital infusion.
The Nifty PSU (public sector unit) Bank index, comprising 11 banks, fell as much as 1.96 percent to Rs 3,243 on Wednesday to the day’s low, after Bloomberg reported that the government was likely to cut its capital infusion target in banks this financial year.
However, analysts said that it could be a case of deferral of capital to the next financial year (FY) 2017-18, adding that the capital infusion target of Rs 70,000 crore over the four-year period ending FY19 is insufficient in the light of the huge bad loans in the sector. A spillover of the capital to next financial year does not lead to a change in the view on the state-owned banks, Vaibhav Agrawal, vice president- research for banking at Angel Broking told BloombergQuint on the phone.
...its not about the $1.2 billion because any sum is still going to be quite short of the capital infusion is required. So Rs 6,000-7,000 crore in the context of the sector won’t make much of a difference. We are anyways not positive on these banks, so this does not in anyway change the picture materially.Vaibhav Agrawal, Vice President, Research-Banking, Angel Broking
Analysts said that public sector banks have not been performing well. Their growth was below 5 percent barring one or two banks, Aalok Shah, analyst-banking and financial services, Centrum Broking Ltd., told BloombergQuint on the phone.
The capital infusion was intended towards ensuring the capital requirements as per Basel-III norms and not for growth. It was more to take care of asset quality related problems which had impacted banks’ capital adequacy. The third quarter results indicate there is still a lot of pain which means the capital requirement is more towards staying afloat and not trying to compete on credit growth. This does not change our stance on PSU banks.Aalok Shah, Analyst - Banking And Financial Services, Centrum Broking
Bloomberg reported that the government may cut the amount of capital it plans to inject into state-controlled lenders in FY17 by as much as Rs 7,800 crore ($1.2 billion) because of slow loan growth, quoting people with knowledge of the matter.
The government had promised a capital of Rs 25,000 crore for 13 government-owned banks in FY17. It has already allocated close to Rs 22,900 crore to the banks and released about 75 percent of that amount so far. Nearly Rs 2,100 crore remains to be allocated (which was to be based on factors including performance, efficiency and growth of credit and deposits), while another Rs 5,700 crore remains to be released. A cut in the capital infusion for FY17 would mean the capital injected in FY17 would be lower by Rs 7,800 crore than promised.
The FY18 capital infusion target had been set at Rs 10,000 crore under the ‘Indradhanush’ programme, which the Finance Minister during the Union Budget 2017-18 said would be increased “if required”.
