Indian banks may be upgraded by international rating agencies, following the government’s decision to recapitalise public sector banks. An upgrade will make it easier for them to raise funds in international markets.
The decision by the government has been termed as credit positive by rating agency Moody’s, an euphemism for stating that their chances for a rating upgrade have improved.
In his Budget last week, Finance Minister Pranab Mukherjee said Rs 16,500 crore ($3.6 billion) will be used to ensure that public sector banks (PSBs) are able to attain minimum 8% tier-1 capital by March 2011. Moreover, an additional Rs 1,200 crore ($260 million) of new capital is currently being infused into PSBs; these are already close to their 51% minimum government-shareholding requirement.
By statute, PSBs’ government shareholding cannot fall below 51%, and there are no plans by Indian authorities to change this law. The funds to be infused into the Indian PSBs originate mainly from a $2 billion loan approved by the World Bank for this purpose. According to Moody’s, recapitalising some of these PSBs appears to be a one-way road for the government, given the banks’ need for fresh equity. Most rated PSBs have already diluted their government shareholding significantly by raising new capital through initial public offerings (IPOs) over the last few years.
State Bank of India chairman OP Bhatt indicated last week that it is hopeful of receiving Rs 10,000-20,000 crore in the form of rights from the government and had expected an announcement on it in this Budget. Other banks have asked for capital in the range of Rs 500-1,500 crore. Among them, Union Bank of India has asked for Rs 1,800 crore, Bank of Maharashtra and Syndicate Bank said they would require Rs 1,500 crore each over the next three years. Dena Bank has asked for Rs 1,200 crore.
Indian Overseas Bank and Oriental Bank of Commerce have sought Rs 1,000 crore each while Punjab & Sind Bank said they have requested a sum of Rs 500-700 crore. Andhra Bank has asked for Rs 1,150 crore. The government has yet not announced the allocation of capital to each bank.
Over the short-to-medium term, PSBs are likely to be adequately capitalised, thus providing them with financial flexibility to implement future growth plans in a relatively underbanked market. The capital infusion will also allow PSBs to meet any possible more stringent regulatory requirements.
+1.jpg)
0 comments
Post a Comment