Budget 2016 credit negative for public sector banks, says Moody's

Moody's Investors Service on Thursday has said the Budget 2016 is "credit negative" for public sector unit (PSU) banks as the capital infusion road map falls short of the required Rs 1.45 lakh crore.

"The Budget 2016 is credit negative for public sector banks because the government has stuck to its capital infusion road map announced in 2015, budgeting Rs 25,000 crore in injection," says Srikanth Vadlamani, Moody's Vice-President and Senior Credit Officer.

Moody's, in a statement, said the Union Budget 2016-17 is moderately credit positive for most sectors, but credit negative for public sector banks because of the insufficient allocation of capital for the segment.

"We believe that unless the banks receive Rs 1.45 lakh crore for the four fiscal years ending March 31, 2016, to March 31, 2019, their credit profiles will worsen," added Vadlamani.

The government has budgeted to infuse Rs 25,000 crore in PSU banks in the next fiscal under the Indradhanush programme, in which Rs 70,000 crore will be allocated between March 2016 and March 2019.

Moody's said PSU banks are unlikely to gain access to capital markets for equity capital in the near term, given their low valuations.

"The banks will, therefore, have to turn to the government for capital injection at least over the next 18 months," it said.

As for the Indian sovereign, the Budget 2016 indicates a continued commitment to gradual fiscal consolidation by bringing down the fiscal deficit to 3% over the next two years.

However, the proposals do not contain significant measures to address structural fiscal challenges, it said in a note titled 'Inside India'.