Capital raising by a number of public sector banks (PSBs), including the Punjab National Bank (PNB) and the Union Bank of India (UBI), is credit positive because it will help improve their loss-absorbing buffers, global rating agency Moody’s said on Tuesday.
In a Credit Outlook article, Moody’s said that it signals improved access to the equity capital markets and will reduce PSBs’ dependence on fund infusion from the government.
“The inability of most PSBs to access the equity markets has been a key capital constraint. The share prices of most PSBs that we rate improved substantially after the Indian government’s October announcement of the recapitalisation package for the country’s 21 PSBs,” it said.
Last week, the PNB and the Union Bank of India raised ₹5,000 crore and ₹2,000 crore as new capital through qualified institutional placement. Besides, Syndicate Bank raised ₹1,150 crore.
“The PSBs’ capital raises are credit positive because they will help improve the banks’ loss-absorbing buffers ahead of the gradual phase-in of Basel III norms in the country,” it said.
On a pro forma basis, it said, the capital raise will add about 100 basis points to PNB’s Common Equity Tier 1 (CET1) ratio, which was 8.1% as of September 2017.
UBI and Syndicate each will add 60-70 basis points to their CET1 ratios, which were 7% and 7.2%, respectively, as of September 2017, it added.
