Recapitalisation Plan Credit Positive For State-Run Banks: CRISIL

The recapitalisation plan announced by the government is credit positive for state-owned lenders saddled with mounting non-performing assets, rating agency CRISIL said in a report.

The package will help public sector banks accelerate provisioning for stressed assets, speed up the bad loan resolution process and support the clean-up of balance sheets, according to Krishnan Sitaraman, senior director at CRISIL. “This will, in turn, help them focus on reviving credit growth,” he added.

The finance ministry on Wednesday announced an allocation of Rs 2.11 lakh crore over two years for the recapitalisation of public sector banks. The plan is intended to help banks make adequate provisions against bad loans and revive lending, which, in turn, may help support a recovery in the economy and private investment.

This is a better form of fiscal stimulus with potentially far greater multiplier effect. The announcement is timely given the expectation of a capex cycle revival in fiscal 2019, which will certainly need a revival in bank credit.

Prasad Koparkar, Senior Director, CRISIL

India’s capital starved banks have been struggling to provide for stressed assets. Bad loans in the Indian banking sector have crossed Rs 8 lakh crore following an asset quality review conducted in 2015. In addition, banks also need capital to transition towards the full implementation of Basel III norms.

“PSBs need Rs 1.4 to 1.7 lakh crore additional capital to meet Basel III requirements by March 31, 2019, so the package is adequate,” the rating agency said.

However, Dharmakirti Joshi, chief economist at CRISIL noted that for the plan to be effective, it has to be complemented by speedier banking reforms, leading to a meaningful change in the operating model of these institutions.

(This article was originally published on BloombergQuint)

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