New Delhi: Mid-sized PSU banks are likely to be affected more than the large banks from the credit costs arising out of developments like Supreme Court ordering cancellation of coal block allocation, a report said.
According to India ratings and Research, adequate capitalisation is critical for banks to mitigate concentration risks arising out Supreme Court order on coal block allocation.
"We expect most private sector and large public sector banks (PSUs) to be better placed in handling credit costs arising out of this development with sufficient operating and capital buffers," the report said.
However, 10 mid-sized PSU banks will be affected the most with their thin operating margins and weaker capitalisation, the report added.
According to Ind-Ra's estimates, the committed sanction to power projects in the private sector that are impacted by the judgement is around Rs 1,400 billion. Of this, the committed exposure of banks is estimated to be around Rs 900 billion.
While the large PSUs (State Bank of India, Bank of Baroda, Bank of India, Canara Bank and Punjab National Bank) account for 46 percent of this exposure compared with 39 percent for the 10 mid-sized PSUs, in terms of assets, the risk is much higher for the latter group, the report said.
Ind-Ra expects private sector banks and large PSU banks to manage potential credit costs more effectively than mid-sized PSUs due to their better operating buffers.
The ten mid-sized PSUs included in the report are -- Allahabad Bank, Andhra Bank, Central Bank of India, Dena Bank, IDBI Bank, Indian Overseas Bank, UCO Bank, Union Bank of India, United Bank of India and Vijaya Bank.
