Bengaluru: Government of India’s announcement to infuse INR 2.11 Lakh Crores into Public Sector Banks (PSB) is a credit positive step for the NPA plagued sector, reports Brickwork Ratings. With this Brickwork Ratings expects PSBs credit profile to improve significantly. The agency believes that this step should be monitored by enforcing strict conditions for banks to optimally utilise the allocated funds, have clear targets to reduce NPAs and develop strong balance sheet moving ahead.
A study in early January 2017, Brickwork Ratings had projected INR 2 lakh crores as the required amount for capitalisation for PSBs by FY19. Today’s announcement by the government reflects the prudent step it has taken to address this issue.
“Indian economy has been witnessing muted growth in the past few quarters. However, with fundamentals being strong and with a declining inflation rate, the economy needed a much awaited stimulus in the form of economic reforms. Today, the government has taken a bold and much required step which seems to be in the right direction to propel economic growth by addressing a key issue of capitalisation of Indian PSBs” said Vivek Kulkarni, Founder Managing Director, Brickwork Ratings.
He added, “This step also takes care of excess liquidity banks are facing currently on account of last year’s demonetisation. Banks can cleverly invest these funds in the recap bonds which will ultimately be routed back as equity in the system. This step will also ensure that bond market will not be impacted by such a large issuance for the private sector issuers.”
Brickwork Ratings also believes that with the capital issue being addressed for the PSBs, the banks would resume lending activity and grow their balance sheets. This would ultimately benefit the MSME sector which is undergoing through one of its major funding crisis in the country.
“Improved credit conditions and steps like compulsory TReDs registration, access to bank finance through central portal through revamped udyamimitra.in, 100 bank approved project templates and sector specific Mudra financing is huge credit positive for the MSME sector in the country.” said D Ravishankar, Founder Director, Brickwork Ratings.
He added, “The total procurement by PSUs from MSMEs are less than 10% of their overall procurement. Hence a two-way is required by increasing their procurement from MSMEs beyond 10% and ensuring that this entire procurement by PSUs mandatorily happens through TReDs. These steps would improve the liquidity for MSMEs and would boost growth beyond their sentiments.”
