PSBs sanctioned loans worth Rs 6.45 trn in lockdown between Mar 1-May 15

State-owned banks have sanctioned about Rs 6.45 trillion worth loans to various sectors including Micro Small and Medium Enterprises (MSME), agriculture and retail between March 1 and May 15 when businesses were reeling under the impact of the Covid-19 crisis.
Loans sanctioned at the end of May 8 stood at Rs 5.95 trillion.
"Loans worth over Rs 6.45 trillion were sanctioned by PSBs during March 1 May 15 for 54.96 lakh accounts from MSME, Retail, Agriculture & Corporate sectors; A notable increase compared to the Rs 5.95 trillion sanctioned as of May 8," Finance Minister Nirmala Sitharaman said in a tweet.
"Public Sector Banks sanctioned over Rs 1.03 trillion as emergency credit lines & working capital enhancements in the period March 20 to May 15, which is a substantial increase over the Rs 65,879 crore that had been sanctioned up to May 8," she said.
State-owned banks launched an emergency credit line to provide funds to its existing MSME and corporate borrowers in the last week of March, soon after the lockdown was announced.

Under the scheme, the banks provide an additional line of credit of 10 per cent of the existing fund based on working capital limits, subject to a maximum of Rs 200 crore.

Private lenders may lose deposits to PSBs due to YES Bank bailout: Report

The YES Bank rescue has undermined confidence of depositors in private sector lenders and will lead to smaller entities losing deposits to state-run banks, a report by global ratings agency Moody's Investors Service said on Tuesday.
The research report comes at a time when many private sector lenders have reported a contraction of deposits in the March quarter when the YES Bank crisis happened. The RBI - which had to steer the over Rs 10,000 crore YES Bank bailout - has repeatedly assuaged such concerns, saying money in all the banks is safe.
"The YES Bank event undermines depositor confidence in private sector banks, whereas public trust in PSBs (public sector banks) will remain strong, underpinned by a perception of strong government protection for them," the rating agency said, news agency PTI reported..
"As a result, some private sector banks, particularly, small institutions could lose deposits to PSBs, which will weaken their funding profiles," it added.
Moody's said the YES Bank episode places the country's financial system on "alert" and the rescue in itself "exposes weaknesses in the process to support a failing private sector bank".
"This case highlights that authorities will only rescue a private sector bank after imposing a moratorium, which effectively constitutes a default as it prevents the bank from making timely payments to its depositors and creditors, Alka Anbarasu, vice president and senior credit officer, said.
Apart from peer private sector banks, the YES Bank event will also impact the non bank lenders, who have already been facing troubles since the collapse of infra lender IL&FS in 2018, it said.

The agency said the YES Bank rescue package - which saw a write-off of Rs 8,415 crore of investments in the additional tier-I bonds - will increase uncertainty among debt investors about the health of the overall financial system in India, which will in turn exacerbate funding stress at the NBFCs.

Bank merger will slow down loan growth, rivals likely to benefit: Analysts

Current Affairs

Equity analysts predict that India’s move to merge several of its state banks will slow their loan growth, and many brokers advise buying shares of the lenders’ rivals who stand to benefit from the uncertainty.
While the mergers will reduce the number of state-owned banks to 12 from 27 and are aimed at creating bigger and healthier lenders, the time needed for integration and challenges related to staff, branch and process overlaps are expected to be the main immediate risks.
Prime Minister Narendra Modi’s government late Friday surprised analysts by announcing a series of mergers that will create four new lenders that will hold business worth Rs 55.8 trillion ($781 billion), or about 56 per cent of the Indian banking industry. The announcement came minutes before data showed economic growth in Asia’s third-biggest economy slumped to a six-year low of 5 per cent, below the weakest estimate of 39 economists polled by Bloomberg.
Futures contracts on India’s Nifty 50 Index dropped 1 per cent in Singapore on Monday, when local markets were shut, indicating the broader stock market may decline when they open for trade on Tuesday.
Here is what some of the analysts are saying:
Caution on Merger Candidates

 Mergers will keep state-run banks “busy in the integration process for a prolonged period and thus help private banks further consolidate their business market share,” Emkay Global analysts Anand Dama and Rahul Malani wrote in a note dated Sept. 3. Emkay downgrades Indian Bank to hold from buy, and maintains sell on Punjab National Bank, Canara Bank and Union Bank, citing merger overhang...Read More

Rs 70K-cr capital infusion in PSBs credit positive, to boost economy: S&P

International News

The proposed Rs 70,000-crore capital infusion into public sector banks (PSBs) will provide a timely booster to these lenders, S&P Global Ratings has said.
The move, announced in the Budget, is likely to be credit positive for the banking sector and the economy, S&P said in a note titled 'India's Budget attempts to address trust deficit in the financial sector.
"We believe the capital infusion will help PSBs make necessary haircuts on their weak corporate loans and shore up their capital adequacy," said S&P Global rating credit analyst Geeta Chugh.
The capital infusion will help some banks to come out of the central bank's prompt corrective action and resume lending and clean up their balance sheets, she added.
S&P said it believe PSBs still require substantial reforms to improve risk management, service quality, efficiency, and diversity of product offerings.
While the government has infused large amounts of capital into PSBs in the past few years, the progress on reforms has been rather lackluster, S&P said.
The US-based rating agency said the government has also signalled liquidity support for the financially sound non-bank finance companies (NBFCs).
PSBs' purchase of high-rated pooled assets of Rs 1 lakh crore will now be eligible for a one-time six months' partial credit guarantee by the government for a first loss of up to 10 per cent.

 We believe this will shore up demand for these assets. The Reserve Bank of India (RBI) will also facilitate these transactions by providing banks a liquidity backstop against their excess holdings of government securities, S&P said...Read More