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India's record bank capital boost lauded by Fitch, Moody's

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GANESH65

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India's record bank capital boost lauded by Fitch, Moody's

India’s plan to inject an unprecedented 2.11 trillion rupees ($32 billion) into state-controlled banks will bolster their risk buffers and support the financial system, two major credit-rating companies said.

“The proposed infusion is a sizable jump over what had been pledged before as India is seeking to plug a large part of the core equity gap at the state-run banks,” said Jobin Jacob, a Mumbai-based associate director at Fitch Ratings Ltd. This addresses “weak core capitalization one of the key drivers for our negative outlook on the South Asian nation’s banking sector.”



The move is part of Prime Minister Narendra Modi’s goal to help banks meet tighter capital-reserve requirements and boost credit as slower economic growth and falling demand erode borrowers’ ability to repay loans. Soured debt is now the highest since 2000, hampering credit expansion that’s needed to spur Asia’s third-largest economy.


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Moody’s Investors Service analyst Srikanth Vadlamani said the move is a “significant credit positive” for India’s state-run banks. The amount of capital pledged is enough to address the lenders’ solvency challenges and recapitalize them adequately, Vadlamani, who is vice president of the financial institutions group at the unit of Moody’s Corp., said by phone.

Read more at:
//economictimes.indiatimes.com/articleshow/61215032.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst




 
As depositors are not organised, they become an easy target for banks. When banks are not able to take action on their non-performing assets, they penalise the depositors by reducing interest on deposits. Banks must realise that without depositors, they cannot be in business. But the treatment to the depositors by the government, banks and all business lobbies is pitiable.

There are many senior citizens who are living on interest income from banks. Interest rate for deposit was 9 per cent some four years ago, which is around 6.75 per cent now. If someone was getting a monthly interest of ₹ 7500 on his deposit of ₹ 10 lakh, now he will be getting ₹5,625. This is a reduction of 23 per cent in his income. The Government and RBI must ponder over whether the price of essentials is reduced by this much during this period.


There are already signs of funds getting shifted from banks to mutual funds. If the banks and policy makers do not realise that somebody is ‘moving their cheese’ and act fast, they will be out of business in course of time and the commercial banks may have to become investment banks in future.


http://m.thehindubusinessline.com/opinion/forgotten-depositors/article9924070.ece
 
The plight of senior citizens living off bank interest is pitiable.Now they have to expose their savings to mutual funds.

THis NPA issue of state owned banks cannot be solved so easily.ONe can keep pumping more money into PSU banks.

The big borrowers are not going to return any money to banks. Only small borrowers will get harassed..

Everytime Govt pumps big money into big nationalised banks,best to sell their shares and book profits. You might make as much as 40% on your money in SBI, PNB

,Canara bank.

Buy shares of HDFC bank,or any private bank or shares of NBFC to make easy money.
 
The plight of senior citizens living off bank interest is pitiable.Now they have to expose their savings to mutual funds.

THis NPA issue of state owned banks cannot be solved so easily.ONe can keep pumping more money into PSU banks.

The big borrowers are not going to return any money to banks. Only small borrowers will get harassed..

Everytime Govt pumps big money into big nationalised banks,best to sell their shares and book profits. You might make as much as 40% on your money in SBI, PNB

,Canara bank.

Buy shares of HDFC bank,or any private bank or shares of NBFC to make easy money.

The economics of NPA and recapitalization are not that simple.

The Government has not yet announced the details of the recapitalization effort.

The Govt. has just said this much that the funds will be offered by way of a recapitalization bond issue. The banks will be encouraged to invest their idle deposits(they are substantial now) in the bond to be issued by Govt. The Govt. will in turn i nvest these monies in the recapitalization effort in Banks. The banks perhaps will be free from the burden of 30% immobilization (due to SLR and CRR requirements) burden while getting their capital accounts and CAR improved substantially. With the improved CAR they can meet the latest BASLE CAR norms to participate in international lucrative consortium finances and Syndicated loans. The step will certainly help Banks improve their bottom lines.

We have to wait for the details of the recapitalization bonds issue like the term, options and interest rate etc.,
 
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