Capital infusion of $9 bn enough for all PSU bks: Religare


The confirmation that the government would recapitalize public sector banks with USD 9 billion (about Rs 57,000 crore) over the next two fiscal is a big positive for the sector, says Parag Jariwala of Religare Capital Markets. “Capital infusion of this size would be more than enough for all the PSU banks,” says Jariwala. It is a positive step because the earlier amount of Rs 7,940 crore which the Finance Minister had earmarked in the Budget would not have been enough. Most of the mid-tier and small banks are starving for capital, he adds. It is a positive step because the earlier amount of Rs 7,940 crore which the Finance Minister had earmarked in the Budget would not have been enough. Most of the mid-tier and small banks are starving for capital, he says. Although capital infusion is a welcome step, asset quality remains a problem for PSU banks and until that is resolved, private sector banks remain better bet. However,as a tactical buy he suggests  Union Bank  and Bank of India  . The banks that are likely to meet the performance criteria for recapitalization are SBI  ,  Bank of Baroda  and Punjab National Bank  , says Jariwala. Answering a query on rate cut expectations from RBI, he says the house view is that there would be two more rate cuts. Below is the transcript of Parag Jariwala’s interview with Latha Venkatesh and Reema Tendulkar on CNBC-TV18. Latha: What is the reaction that we are going to get Rs 20,000 crore bank capital against the originally budgeted Rs 7,900 odd? A: If the number actually comes out to be Rs 20,000 crore, definitely very positive for almost all public sector (PSU) banks. Mainly Rs 7,900 crore was definitely not enough because a lot of mid-tier and small PSU banks are starving of capital and if they go to the market, they may have to raise around 70-80 percent of their current market capitalisation, which with the kind of financials they have is definitely impossible. So, it is a step in right direction. Latha: We have a little more. Mr Mehrishi, the finance secretary told Shereen Bhan that it will be USD three billion and double that next year. So, basically you are looking at Rs 20,000 crore this year and Rs 40,000 crore next year. Does that look like even better news? A: Yes, definitely. If Rs 20,000 crore this year and Rs 40,000 next year, then it kind of takes capital requirement which is there for the entire system very adequately. It would be more than enough for almost all the PSU banks. Latha: Today if you were to bet on some banks, which would they be? A: Capital is a problem with PSU bank, I agree and if that resolves, it is positive. But the bigger problem is about the asset quality. Till those things are resolved, I will still continue to hold my bets on private sector banks. Latha: You will not go in for a tactical buy also? A: It could be. A tactical buy on PSUs could be some of the beaten down PSU Banks like Union Bank, Bank of India which are starved of India and there is a separate issue pertaining to those. Reema: Since the banking re-capitalisation at least according to the Budget would be given to banks which meet the performance criteria. With the additional money, if the re-cap is USD three billion, will be about USD 1.7 billion because in the budget the proposed amount was USD 1.3. apart from Union Bank, Bank of India, which are the other banks which according to you will be beneficiaries of this incremental money which will come through which meet the performance criteria? A: The performance criteria definitely will be met by top three banks like SBI, Bank of Baroda (BoB) and Punjab National Bank. For remaining, they need to do much of the things to improve their performance because the kind of numbers Bank of India, Union and  Canara Bank  has reported and also the other small or mid-sized PSU banks. They will take at least a quarter or two or maybe this entire financial year to meet the criteria of what was being set out by the finance ministry earlier. That remains a critical overhang that if they do not meet the criteria. If government is even okay to give funds despite they not meeting the criteria. So, yes, we need to wait and watch. Latha: With the rains improving or at least looking better than what was forecast on the day of the credit policy, are you factoring in some positives in terms of a rate cut or lower government bond yields? A: Our rate cut assumption according to our economist was around two more rate cuts in this financial year and we have not changed that.

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