NEW DELHI: Rating agency Crisil has revised its outlook on the long-term debt instruments (excluding Basel III Tier I) of 18 public-sector banks (PSBs) to ‘stable’ from ‘negative’. According to a statement issued by Crisil, the revision in outlook is driven by the government’s PSB recapitalisation programme for this fiscal. The agency expects the recap to improve the financial risk profile of these banks and also help them meet Basel III regulatory capital norms, and provide cushion against expected rise in provisioning for non-performing assets.
“The ratings on Basel-III tier-I bonds of nine PSBs have also been reaffirmed, and the outlook has been retained as ‘negative’,” it said. It added that it is evaluating banks’ flexibility to set off any accumulated losses with share premium account money and its implication on the availability of eligible reserves to service AT1 coupon payments. “We will revisit our ratings on AT1 instruments once there is clarity,” it said in a statement.
On Wednesday, the government announced details of bank-wise infusion of Rs 88,000 crore capital this fiscal. Crisil assessed the impact of this and believes with expected capital infusion from government, PSBs are now adequately placed to meet Basel-III capital norms and are better prepared to absorb the hit from provisioning on stressed assets and also on account of migration to Indian Accounting Standards (Ind AS).
“While emphasising the government’s support, the recapitalisation plan also persuades public sector banks to up the ante on responsible banking. The upshot of more accountability, governance and efficiencies is a structurally stronger banking system and improved investor sentiment towards them.”
According to Crisil, asset quality issues are peaking for banks with incremental slippages to NPAs expected to taper in fiscal 2018 and 2019 as credit health of corporate borrowers’ are improving. However, the resolution of large corporate stressed accounts under the Insolvency and Bankruptcy Code and the potential haircuts may increase the provisioning burden of PSBs and impact their earnings profile and capital position in the near term.