Moody's downgrading of banks not to have long term effect

New Delhi: Dismissing concerns over downgrading of Indian banking system by Moody's, the government today said the rating will have no long lasting effect as the sector's financial health is sound.

"There is no cause of concern ... the Indian banking sector is in sound financial health and Moody's ratings would not have a long lasting effect on the banking sector in India," Minister of State for Finance Namo Narain Meena said in a written reply to Rajya Sabha.

Early this month, US-based Moody's Investor Service had changed its outlook for India's banking system to 'negative' from 'stable' citing concerns of high inflation, monetary tightening and rapidly raising interest rates.

The minister said both the banking sector and the government are aware of challenges and taking all steps to counter the challenges which are primarily coming from outside India.

"The Government of India is committed to keep the banking sector in good health. Therefore, interest of small investor would not be affected in the long run," Meena said.

Almost all banks are having above 9 per cent Tier-I capital and 11 per cent total capital. RBI requirement is 6 per cent and Basel II requirement is 4 per cent of Tier – I capital.

Besides, over and above Basel II requirement, Indian banks are providing a counter-cyclical buffer up to 70 per cent of the risk weighted assets. The NPAs of Indian banks are in the range of 3-3.5 per cent.

In an another reply, Meena said that in order to maintain a minimum Tier-I capital adequacy ratio of 8 per cent as on March 2012, the government has made a provision of Rs 6,000 crore for capital infusion in public sector banks.

A provision of Rs 1,000 crore and Rs 300 crore for equity capital infusion in IIFCL and Exim Bank, respectively, has also been made.

The minister said that the Cabinet has also approved for augmenting the capital base of Nabard by infusing Rs 3,000 crore as government equity in the next fiscal.

Source: Financial Express