BWR has factored in the recent announcement of capital infusion by the Government of India (GOI) in its initiative to further strengthen the capital base of the Public Sector banks (PSBs). Brickwork Ratings views this as a credit positive step which will boost the PSBs to focus on credit growth, currently facing weak asset quality.
The GOI has extended its continued support to the PSBs by announcing allocation of Rs. 2.11 lakh Cr which will enable the PSBs to strengthen their balance sheet. This will help the PSBs to increase credit growth. As part of this plan, the government will issue recapitalization bonds worth Rs. 1.35 lakh Cr and infuse it as capital into PSBs. Under the Basel 3 implementation roadmap, banks need to increase total capital (including the capital conservation buffer) to 10.875 percent by March 2018 and to 11.5 percent by March 2019. The planned capital allocation will help PSBs meet the above regulatory norms.
Earlier in August 2015, the GOI had announced the Indradhanush – a recapitalization plan to infuse Rs.70,000 Cr into PSBs between the period FY 16 to FY19. This was to be supported by the respective PSBs raising capital on their own through equity issuances and sale of non-core assets.
The asset quality issues and provisioning has impacted the Bank’s Capital adequacy ratios given their limitations to raise capital. The lack of capital has prevented PSBs from growing and cleaning up their books by increasing provisions against bad loans. This has necessitated the need for GOI to increase the infusion of capital into PSBs.
BWR has placed the bonds of PSBs on Credit Watch with Positive Implications, given that the quantum of infusion in individual PSBs is yet to be decided. BWR will continue to monitor the landscape. Once the actual capital infusion to each of the PSBs materializes, BWR will take appropriate rating action.
Names of PSBs bonds rated by BWR are as follows:
|Banks||Rating Action on 25 October 2017|
|Allahabad Bank||Credit Watch with Positive Implication|
|Andhra Bank||Credit Watch with Positive Implication|
|Bank of India||Credit Watch with Positive Implication|
|Bank of Baroda||Credit Watch with Positive Implication|
|Canara Bank||Credit Watch with Positive Implication|
|Corporation Bank||Credit Watch with Positive Implication|
|Central Bank of India||Credit Watch with Positive Implication|
|Oriental Bank of Commerce||Credit Watch with Positive Implication|
|Indian Overseas Bank||Credit Watch with Positive Implication|
|Punjab and Sind Bank||Credit Watch with Positive Implication|
|Punjab National Bank||Credit Watch with Positive Implication|
|State Bank of Mysore||Credit Watch with Positive Implication|
|UCO Bank||Credit Watch with Positive Implication|
|Union Bank of India||Credit Watch with Positive Implication|
|United Bank of India||Credit Watch with Positive Implication|
|Vijaya Bank||Credit Watch with Positive Implication|
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