Global credit rating agency Moody's Investors Service on Monday said the Indian government's decision to infuse fresh capital into Indian Overseas Bank (IOB) and Central Bank of India is positive for them.
In its report Moody's said the two banks received a higher share of the capital allocation as a proportion of their share capital.
"The capital infusion will improve their capitalisation at a time when asset quality pressure and elevated provisioning costs have negatively affected their financial performance, " Moody's said.
On July 19 the central government announced infusion of Rs 22, 915 crore as additional capital for 13 banks.
The city based IOB got Rs 3, 101 crore and Central Bank of India Rs 1, 729 crore.
"Indian banks, especially public - sector banks, continue to recognise non - performing loans (NPLs) from larger leveraged corporates, especially in the steel and power sectors, pressuring their asset quality. In addition, slippages from the restructured loan book will contribute to the rise in NPLs. As a result, provisioning expenses are likely to remain elevated, constraining profitability and limiting the banks' internal capital generation, " Moody's said.
According to Moody's this timely round of capital infusion augments their capitalisation, aiming to improve their ability to raise equity capital from public markets.