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"DFS infused Rs 8,800 crore into SBI in 2017-18 for credit growth considering it the largest PSB in the country even though there was no demand. DFS did not conduct assessment of the capital requirement as per its own standard practice before recapitalisation," it said.
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Merger related costs would reflect in Q3 and Q4 FY20, and banks thus expect another round of capital infusion after consolidation
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Rangarajan comments assume significance as Finance minister Nirmala Sitharaman, in August, announced upfront capital infusion of Rs 70,000 crore into public sector banks, a move aimed at boosting lending and improving liquidity situation.
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The Finance Minister said she hoped normalcy in the NBFC space would be restored in six to seven months’ time and that the RBI should see NBFCs quickly address the problems
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The statement assumes importance as two PSBs – PNB and Central Bank of India – have informed BSE regarding their respective proposals to government to infuse more capital
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The rating agency also affirmed the state-run lender and its DIFC branch's long-term foreign currency senior unsecured debt rating at B1 and changed the outlook to positive.
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The positive outlook reflects upward pressure that could develop on these banks' long-term ratings, if their capital positions continue to improve over the next 12-18 months
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It said if the last month's announcement to inject USD 32 billion of fresh capital into the state-run banks over the next two years is well executed, it will be significantly credit positive.
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The insurer also likes metals stocks and consumption-driven sectors, especially those that target rural consumers, but would avoid the non-bank finance companies, Prashant Sharma, chief investment officer at Aviva Life Insurance Co. India Ltd, told Reuters.
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Now that the government has announced that Rs 1.35 lakh cr will be infused into public sector banks through recapitalization bonds, a lively debate has sprung up among bankers and fixed income traders on how to design these bonds. Here are some thoughts.
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Besides reviving credit growth after a period of weakness post demonetisation, the recap plan will help banks wind down their Non Performing Assets (NPAs) or bad loans and take up fresh credit, which should help boost a private capex recovery in India, the report noted.
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According to the global financial services major, though the recapitalisation amount may create a supportive environment for growth, it may not drive growth by itself.
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The government recently announced to infuse Rs 2.1 trillion (USD 32 billion) in state-run lenders over a two-year period. Under the current plan, Rs 1.35 trillion of the total amount will come from recapitalisation bonds and Rs 0.76 trillion from budgetary support and fund-raising in the capital markets over the next two years.
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According to the global financial services major, the banking sector recapitalisation is aimed at significantly reducing the drag on PSU banks on credit growth and will also boost investment and GDP growth.
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After an assessment of the money required for handling various stress scenarios in the banking system and the financial markets, the RBI transfers its surplus or the dividend, to the government. Once it transfers the money, it is for the government to use is the way it wants, the newly appointed joined deputy governor said.
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Ground work to resolve the nonperforming loans‘ (NPL) issue has been completed but couple of more quarters need to go by before results start showing says, State Bank of India‘s MD-Corp Banking Group B Sriram sharing his outlook on performance in the coming quarters with CNBC-TV18.
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Finance Minister Arun Jaitley announced an allocation of Rs 10,000 crore for ailing state banks in his Budget speech yesterday. While nimble, bigger lenders will have no complaints, smaller public sectors may not feel the same way.
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Former ICICI Bank Chairman KV Kamath says the demonetisation drive is a courageous move and the impact in the system due to cash ban will help in recapitalising banks and also address the issue of corruption.
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The budget allocated for this purpose is about Rs 25,000 crore, of which Rs 22,000-23,000 crore will be offloaded and the remaining may be kept aside for further capitalisation, says Sapna Das of CNBC-TV18, quoting sources.
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When banks invest in goverment bonds, the government will plough the money back into the banks in the form of equity, says Ashvin Parekh of Ashvin Parekh Advisory Services.
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The government is also ready with the draft DRT (Debts Recovery Tribunal) Bill amendments, which will be tabled in the Parliament post Cabinet nod
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ICICIDirect says it expects the government to announce additional capital infusion (compared to previously allocated Rs 70,000 crore for FY16-19 under Indradhanush plan), hike in FDI cap in public sector banks to 49 percent from 20 percent and formation of bad bank & capitalisation of the same.
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The Economic Survey said the government could sell off some PSUs to make additional investments in state-owned lenders, as a booster to the PSU banks grappling with bad asset quality.
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Karthik Srinivasan, senior VP and co-head of financial sector ratings at ICRA, says: "The stress has only increased and this pressure on asset quality is impacting the profitability of these banks."
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There are significant redemptions in emerging market ETFs, says Tushar Pradhan of HSBC Global Asset Management. He advises investors to reduce exposure to stocks having high risk during volatility.
