Mumbai: The government’s plan to infuse ₹ 11,336 crore in five public sector banks, including the scam-hit Punjab National Bank, is credit positive and will help these lenders meet the regulatory requirement, according to ratings agency Moody’s Investor Service. The other lenders are Andhra Bank, Allahabad Bank, Corporation Bank and Indian Overseas Bank. The ₹ 11,336-crore capital infusion is part of the government’s ₹ 65,000 crore bank recapitalisation plan for 21 public sector banks this financial year.
“The infusions are credit positive and will strengthen the banks’ capitalisation," global rating agency Moody’s said in a report on Wednesday. The government will infuse ₹ 2,816 crore in Punjab National Bank (PNB), ₹ 1,790 crore in Allahabad Bank, ₹ 2,019 crore in Andhra Bank, ₹ 2,157 crore in Indian Overseas Bank and ₹ 2,555 crore in Corporation Bank.
These banks’ Common Equity Tier 1 (CET1) ratios were the weakest among all public sector banks in March, and they were at risk of breaching the minimum capital requirement of 5.5% under Basel III norms. The rating agency expects these lenders’ CET1 ratios to be above 5.5% after this recapitalisation.
The additional capital will also lower the risk of Andhra Bank and PNB breaching the write-down trigger on outstanding Basel III-compliant Additional Tier 1 (AT1) securities. As of FY18, Andhra Bank disclosed ₹ 2,200 crore of Basel III-compliant AT1 securities and PNB ₹ 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 bank’s CET1 ratio fall below 5.5% before 31 March 2019. After that date, the trigger value steps up to 6.125%.
Moody’s expects the five public sector banks to post losses in FY19, albeit somewhat smaller than their losses for FY18. 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.
With inputs from PTI