The finance ministry is re-assessing the capital needs of public sector banks (PSBs) in a move which may lead to an infusion of R5,000 crore more, over and above the R15,888 crore promised in Union Budget 2012-13. The higher capital infusion is expected to ensure that these banks do not face rating downgrades.
State Bank of India (SBI) could get about R3,000-4,000 crore more to expand its Tier-I capital, sources said. This should help it secure an upgrade from Moody?s, which would have a positive effect across the banking sector.
Last October, Moody?s cut SBI?s bank financial strength rating (BFSR) to the last rung of investment grade D+, citing ?modest capital and weakening asset quality?.
The rating agency did not upgrade SBI?s BFSR even after the lender got Rs 7,900 crore capital from government last fiscal, arguing that capital infusion alone may not be sufficient to raise the bank?s BFSR or standalone ratings. Global ratings agencies Fitch and Standard & Poor?s too have warned that India could lose its investment-grade debt rating.
The finance ministry is working to ensure that India?s ratings are maintained at the investment-grade. Finance minister P Chidambaram recently promised to unveil a fiscal consolidation plan and take policy measures to boost investors? confidence in the economy. Keeping banks adequately capitalised is important to improve their ratings.
The department of financial services is in talks with banks to assess their capital needs. Sources said the government would finalise the capital infusion plan in a few weeks. The government has to capitalise banks to cushion them from increasing non-performing assets (NPAs), and also to provide for credit expansion. The government provided capital of Rs 19,540 crore to the PSBs in 2011-12, against budget estimates of Rs 6,000 crore for the year.
Bad loans have risen partly due to system-driven recognition of NPAs, said National Housing Bank CMD RV Verma. ?But the Indian financial sector has its own strengths, and this problem (of rising NPAs) can be addressed,? he said. Bad loans have grown at more than double the pace of credit growth in the economy. As on March 31, 2012, NPAs grew at 43.9%, far outpacing credit growth of 16.3% during the same period.
Chidambaram, meanwhile, has called a meeting of state-owned banks and financial institutions on Saturday to review their financial performance, the state of NPAs and agriculture loan disbursement. The government is concerned that the deficient monsoon could lead to another jump in bad loans.
Banks? gross NPA ratio rose to 2.9% as on March 31, 2012, up from 2.4% as on March 31, 2011. Net NPA ratio rose to 1.3% as on March 31, 2012, as against 0.9% as on March 31, 2011, as per RBI data. State-owned banks have shown a significant jump in restructured assets and NPAs in recent quarters.
