Budget Moderately Positive For All Sectors Except PSBs: Moody's

MUMBAI : Moody's Investors Service has described the Budget as moderately credit positive for most sectors except public-sector banks, but warned that deficit reduction will remain challenging.

"Budget is modestly credit positive for the sovereign, since it indicates a continued commitment to gradual fiscal consolidation by bringing down fiscal deficits to 3 per cent over the next two years," Atsi Sheth, a Moody's Associate Managing Director for the Sovereign Risk Group, said in a note.

She however said the Budget proposals do not contain significant measures to address structural fiscal challenges, such as the government's low tax revenue base and the vulnerability of government finances to economic shocks.

This means, any deficit reduction will come from either cyclical upswings or tactical fiscal management, rather than a broad-based fiscal consolidation strategy, she said.

According to the report, the Budget is credit negative for public sector banks due to the insufficient allocation of capital for the sector, as the government has stuck to the capital infusion roadmap announced last year, budgeting just Rs 25,000 crore in capital injections next fiscal.

According to Capitaline data, gross non-performing assets of 39 listed banks surged to Rs 4.38 trillion in the December quarter, up from Rs 3.4 trillion in the previous quarter. Most of this is contributed by state-run banks.

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