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Public sector banks may require higher capital infusion on account of deteriorating asset quality  

February 11, 2016

The Economic Times

Intensifying asset quality problems at public sector banks (PSBs) have the potential to impair their credit risk profiles and necessitate significantly higher capitalisation of PSBs either through government infusion or relaxation of regulatory capital norms, according to ratings firm Crisil.

Over the past 18 months, the ratings firm has either downgraded or revised its outlook to 'Negative' on nine out of the 25 PSBs that it rates on the back of expectations of worsening asset quality.

PSBs account for as much as 85 per cent of banking system weak assets. Increasing stress is also visible in the quantum of strategic debt restructuring and 5/25 structuring being carried out by banks.

Deterioration in asset quality in the first nine months of the current fiscal has been faster than expected for various reasons such as the severe downturn in global commodity prices, inability of the leveraged players to sell assets, and the proactive identification of stressed assets as part of Reserve Bank of India's asset quality review.

As a result, Crisil expects that provisioning requirement of PSBs will increase further and render their pre-provisioning profits inadequate, leading to a significant deterioration in earnings profiles. Read more




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