Rs 70K crore infusion of capital in PSBs positive credit, to boost the economy: Su0026P

NEW DELHI: the proposal of Rs 70,000 crore infusion of capital inside public sector banks (PSB) will provide timely reinforcement to these lenders, said Su0026P Global Ratings. The measure, announced in the Budget, is likely to be positive for the banking sector and the economy, Su0026P said in a note titled 'India's Budget attempts to address the deficit of confidence in the financial sector '.

"We believe the infusion of capital will help PSBs make necessary haircuts on their weak corporate loans and shore up their capital adequacy," said S&pglobalratingcreditanalystgeetachugh.

theinfusionofcapitalwillhelpsomebankstocomeoutofthecentralbank'spromptcorrectiveactionandresumelendingandcleanuptheirbalancesheets,sheadded.

su0026psaiditbelievesthatpsbsstillrequiresubstantialreformstoimproveriskmanagement,qualityofservice,efficiencyanddiversityofproductofferings.

"whilethegovernmenthasinfusedlargeamountsofcapitalinsidepsbsinthepastfewyears,theprogressonreformshasbeenratherlackluster,"s&psaid.

theratingagencybasedintheunitedstatessaidthegovernmenthasalsosignaledliquiditysupportforfinanciallysoundnon-bankfinancialcompanies(nbfcs).

thepurchasebythepsbofhighlyratedcombinedassetsofrs1lakhcrorewillnowbeeligibleforapartialcreditguaranteeofsixmonthsbythegovernmentforafirstlossofupto10percent.

webelievethatthiswillsupportthedemandfortheseassets.thereservebankofindia(rbi)willalsofacilitatethesetransactionsbyprovidingbankswithliquiditysupportagainsttheirexcessholdingsofgovernmentsecurities,su0026psaid.

thegrowthandprofitabilityofnbfcsinindiahasbeenunderpressuresincethelastninemonthsasthecycleofeasyliquidityandlowcostofreversedfunds.

thebudgetproposalsmayhelpnbfcstoselltheirhighly-ratedretailassetsandaddresstheirimmediateliquidityneedsandcorrectasset-liabilitymismatches,however,theasset-qualitystressemanatingfromtheirwholesalerealestaterelatedportfoliowillnotbealleviated,itadded.

thebudgetalsoproposestotransfertheregulationofhousingfinancingcompanies(hfc)totherbifromthenationalhousingbank(nhb).

inadditiontobeingtheregulatorofthehfcs,thenhbwasalsotherefinanceandlenderofthesecompanies,whichgaverisetoaconflictingmandate.

thisproposalwillalleviatethisconflictingmandateandwillmakerbithesoleregulatorofkeyentitiesinthefinancialsector,su0026psaid.

thegovernmentalsoannouncedtheamendmenttothereservebankofindiaacttostrengthenthepowersofthecentralbankovernon-government-ownednbfcsandallowforeffectiveresolutionofstressedfinancialinstitutions.

thesepowersincludesupersessionofboardsundercertainconditions; removal of directors on the board; and wide ranging resolution powers including amalgamation with any other non-banking institution, reconstruction of the NBFC, splitting NBFCs inside different units or institutions, and vesting viable and non-viable businesses in separate units or institutions.

The broader mandate and broader powers could lead RBI to evaluate asset quality review (AQR) and increase provisions for financial companies, similar to what was done in the banking sector. Such a measure would help address the confidence deficit that the sector has experienced difficulties. with in recent months, said Su0026P.

comments