Low capital levels haunt India's public sector banks

Capital levels range from 6-10%.

According to Moody's Investor Service, capital levels remain low for PSU banks, with the CET1 of the 11 banks that they rate ranging from 6%-10%. By contrast, capital levels for the private-sector banks that they rate are comfortable, and represent a key credit differentiator.

"Also, unlike many Asian countries where loan loss reserves represent an additional buffer not reflected in capital, PSU banks' loan loss coverage is not particularly high. Moreover, while the stock of restructured loans at PSU banks is higher than their NPLs, the provision coverage on these restructured loans is only around 5%. At their current level of ROE, PSU banks' level of internal capital generation can at best keep their capital ratios stable over the outlook horizon," adds Moody's.