Fitch says nothing wrong with State banks for relying on Govt-infused capital

• Says it is a structural issue for public banks, unlikely to see State banks being privatised in near to medium term
• Points that order \of banks not necessary for capital infusion

By Charumini de Silva

Rating agency Fitch recently justified the Government’s decision to infuse Rs. 5 billion into People’s Bank, insisting that public banks have limited avenues to raise capital.

“Our point is that Government banks need capital and their avenues are limited. Then all these regulations are coming in, which will impose higher demand on them. They can’t go to the market; they have to rely on the Government,” Fitch Head of Financial Institutions - South and South East Asia Ambreesh Srivastava said at a recent forum in Colombo. 

The Cabinet of Ministers last week decided to infuse Rs. 5 billion of fresh capital into the country’s second largest bank, People’s Bank, to strengthen its capital base and to meet new international Basel III standards. 

Pointing out that it is a structural issue for Government banks, he said: “Either they (public banks) need to be privatised or in other words look for alternate sources, which is unlikely at least in the near to medium term.”

Given the limited options for public banks to raise capital, they need to rely on Government assistance.  “The Government tends to give at times from one hand and take away from another. The public banks need capital and their only source is the Government.”



Responding to a question about whether it was important for the Government to first capitalise on the country’s biggest bank, the Bank of Ceylon, he said the order was not important in his view. 

“Basically the Government needs to inject more capital subject to the fiscal space that they (public banks) have and the order is not important in my view,” he added.