Public-sector banks’ capital raising to improve credit growth, says Moody’s

MUMBAI: Public-sector banks’ (PSBs) raising capital via securities is not only credit-positive, but will also improve their loss-absorbing capabilities, Moody’s said on Monday. According to the global ratings agency, the move will also help the banks meet the incoming Basel-III norms and importantly reduce their dependence on government funding.

Last week, at least three PSBs including Punjab National Bank, Union Bank of India and Syndicate Bank raised over Rs  8,000 crore. While PNB raised Rs 5,000 crore, Union Bank raised about Rs 2,000 crore and Syndicate Bank Rs 1,150 crore. This is a part of the Rs 2.1 lakh crore recapitalisation package announced by the centre.

“The PSBs’ capital raises are credit-positive because they will help improve the banks’ loss-absorbing buffers of the gradual phase-in of Basel III norms in the country,” Moody’s said in its Credit Outlook report. It added that the capital raise signals improved access to the equity capital markets and reduces their dependence on capital infusion from the government.

“The inability of most PSBs to access the equity markets has been a key capital constraint. The share prices of most PSBs that we rate improved substantially after the Indian government’s October announcement of the recapitalisation package for the country’s 21 PSBs,” it explained.

As a part of the package, the government will infuse Rs 1.5 crore via budgetary allocations and issuance of recap bonds. The remaining Rs 5.8 lakh crore is supposed to be raised from capita markets. Basel III norms require banks to hold a minimum of common stock equating to 4.9 per cent of the total capital. Common stock held by banks forms their common equity tier-1.

This capital raise will add 100 bps to PNB’s current CET1ratio, which was 8.1 per cent in September. Union Bank and Syndicate Bank will add 60-70 bps to their CET1 ratios, which were 7 per cent and 7.2 per cent, respectively.