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Moody’s predict more capital requirement by PSU banks

banks-logoRating agency Moody’s has predicted that the asset quality of public sector banks will remain under pressure over the next 12 months even as provisioning for bad loans would impact profitability and lead to constraints in raising capital by these banks. It estimates that 11 PSU banks will need at least Rs 120,000 crore capital, which is Rs 50,000 crore more than what the government has planned to infuse into these banks. The government has said it would bring in Rs 70,000 crore as capital in 22 PSU banks by March 2019. Of this, Rs25,000 crore has already been provided by the government and an equal amount is being proposed to be infused during the current financial year. An asset quality review initiated by the Reserve Bank of India in 2015-16 has brought out higher non-performing loan (NPL) ratios and increased loan loss provisioning expenses. Eight of the 11 public sector banks rated by Moody’s, posted a net loss for the full fiscal. The remaining three reported a significant decline in profits. Gross NPAs of the banks have surged by a whopping Rs 2,41,000 crore in just six months — December and March quarters of 2015-16, as a result of provisioning undertaken by these banks. In fact, gross NPAs have gone up from Rs 349,113 crore in September 2015 when the RBI ordered the asset review to Rs 590,772 crore by March 2016.

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