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Divesting majority stake in state-run lenders by govt will be ‘credit negative’ for such PSBs: Icra
Sep-18-2020

Expressing cautiousness, domestic ratings agency -- Icra Ratings has warned that divesting majority stake in state-run lenders by the government will be ‘credit negative’ for such public sector banks (PSBs). It highlighted that many of the entities where the government is mulling selling off majority stake as per reports have a weak credit profile, and added that a move to reduce the public ownership will be hurtful. It noted that these six lenders are primarily supported by sovereign ownership and the ensuing stable deposit base.

The agency said a stake sale can help the government meet its ambitious divestment targets and also save it from future capital infusions. The banking sector and its stability will continue to remain important to government, and the need is to identify strong candidates while identifying the new shareholders. The agency's group head for financial sector ratings Karthik Srinivasan said ‘The financial profile of these PSBs is very weak and the standalone profiles of these banks could be low within investment grades rating given their weak asset quality, profitability, capital and solvency profile’. He added that the liability profile for these banks will become a key monitorable in immediate term as the agency feels that the deposits could be ‘highly sensitive’ to the banks' ownership.

As per the agency's estimates, cumulatively these banks reported losses of Rs 1.08 lakh crore during FY 2016-2020 and the government had to infuse Rs 76,600 crore in capital during this period, and the gross non-performing assets ratio for these banks stood at a high 15.5 per cent as on March 31, 2020. The rating agency said despite the capital infusion, the capital position is weak with Tier 1 capital of 9 per cent and net NPAs being a high 67 per cent of the core capital as on March 31, 2020, translating in weak solvency profile.

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