Recapitalization may upgrade govt banks in international rating charts
By Neelima Shankar
Mar 9, 2010
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The public sector banks may receive an up gradation by international rating agencies following the government's decision to recapitalize them. This upgradation will help these banks in raising funds in the international market.

World renowned rating agency Moody's has termed this decision by the government as credit positive. This implies that the chances of these banks getting their rates getting improved have increased.

In the budget announced for the year 2010-11, Finance Minister Mr. Pranab Mukherjee had said that Rs. 16, 500 crores will be infused this year for recapitalization aid to public sector banks so as to ensure that they are able to maintain 8% Tier I capital. Moreover, an additional Rs 1,200 crore is currently being infused into PSBs.

"We believe that the announcement is credit positive for PSBs. The budget announcement and the willingness of the Indian government to support its PSBs reaffirms our long-held belief that India is committed to its government's majority-owned banks and will continue to infuse fresh capital into them to facilitate their growth and to maintain government control," said Nondas Nicolaides, vice-president & senior analyst of Moody's Investors Service.

As per norms, the Government holding in PSBs cannot fall below 51%. The Indian authorities harbor no plans to change this statute. The funds for recapitalization have mainly arisen from the loan worth $2 Billion with the World Bank last year. Most of the rated PSBs have diluted their government holding by bringing IPOs and raising capital through them since the past few years.

SBI chairman Mr. O.P.Bhatt has commented that the bank expects receipt of Rs 10,000-20,000 crore in the form of rights from the government. Other banks have asked for capital in the range of Rs 500-1,500 crore. Union Bank of India has sought for Rs 1,800 crore. Bank of Maharashtra and Syndicate Bank have placed their requirement of Rs 1,500 crore each over the next three years. Dena Bank has asked for Rs 1,200 crore.

Through this capital infusion the PSBs are expected to become strong enough to handle any stringent regulatory requirement.


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