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Moody’s Investors Service has changed the outlook of Central Bank of India and Indian Overseas Bank (IoB) to positive from stable.
The positive outlook reflects the possible upward pressure on these banks’ long-term ratings if their capital positions continue to improve over the next 12-18 months due to fund infusion by the government.
“The positive outlook also reflects Moody’s view on the expected evolution of their balance sheets, including a stabilisation in asset quality, moderate improvement in profitability metrics, and stable funding and liquidity positions,” Moody’s said in a statement.
As per the recapitalisation plan announced in October 2017, the government has committed to infuse Rs 1.53 lakh crore into public sector banks by March 2019. Of this, the government said it will inject Rs 80,000 crore into 20 of such banks by March 2018 in the form of recapitalisation bonds. In addition, it will infuse another Rs 10,000 crore from budgetary sources by March 2018.
After factoring in the amount already allocated, the government will infuse another Rs 65,000 crore in fiscal 2019. As per the recapitalisation plan, Central Bank of India will receive Rs 5,160 crore and IOB will receive Rs 4,690 crore.’
“Moody’s estimates the capital infusion will increase the common equity tier 1 ratio of Central Bank by 280 basis points and for IOB by 320 basis points compared to the reported ratios of 7 per cent and 7.1 per cent, respectively, as of September 2017,” it said.
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