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MUMBAI: The Centre’s capital investments in banks controlled by it will be sufficient only to meet regulatory needs and, hence, restrict their loan growth to about 4-5per cent.
But the need for capital will not grow much after FY19 as profitability will rise in line with lower credit costs because of the ongoing cleanup in balance sheets, Moody’s said.
The analysis by the global credit rating agency shows that government’s capital injections will only be enough to enable all public sector banks achieve the Common Equity Tier 1 (CET1) ratios of at least 8per cent by March 2019, giving the lenders a capitalisation profile comparable to those of their similarly rated peers globally.
North Block plans to provide Rupee 65,000 crore of new capital for public sector banks in FY19 after infusing Rupee90,000 crore in FY18.
So far this year, the government has infused Rupee 11,300 crore into Punjab National Bank, Andhra Bank, Allahabad Bank, Corporation Bank and Indian Overseas bank.
The capital injections will enable the banks to strengthen their provision coverage, but may not be sufficient if they take large writedowns on the non-performing loans (NPLs) they sell as part of new resolution proceedings.
An increase in provisions could raise their capital needs significantly, Moody’s said.
“The large-scale recapitalization plan, which was meant to improve capital buffers and loan-loss reserves a n d support sufficiently strong loan growth, will now be just enough to shore up capital ratios above regulatory requirements because the banks’ capital shortfalls have grown larger t h a n the government’s initial projection,” says Alka Anbarasu, Moody’s vice president and senior credit officer.
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