International agency Moody’s Investors Services has upgraded the status of Central Bank of India and Indian Overseas Bank (IOB) to positive level from stable on the back of the capital infusion by government of India.

In a positive outlook, Central Bank of India and Indian Overseas Bank have reasons to cheer about as the proposed federal capital injection plan is yielding good news. The international rating agency Moody’s has upgraded the status of both state-run banks from stable to positive – citing the capital strength of these Indian banks. The citation is an implication of positive outlook from the agency because it believes that the capital positions of these two banks will improve in next 12-18 months due to government’s capital infusion. Moody’s see the capital infusion by Modi’s government to bring evolution in banks’ balance sheets, including a stabilisation in asset quality, a moderate improvement in profitability metrics, and stable funding and liquidity positions.

The upgrade in Moody’s ratings today, immediately sent the share prices higher in the bourses. Right after the announcement, shares of IoB and CBI went up more than 1% when the broader sensitive index – Sensex dipped about one and a half per cent. Hence, Moody’s affirmed that the long-term local and capital deposit ratings of both CBI and IOB is at Ba3. The agency also affirmed the banks’ baseline credit assessments (BCAs) at b3 and their counter-party risk assessments (CRA) at Ba2 (cr)/NP (cr). This positive outlook is likely to grow if both banks’ credit fundamentals keep progressing for over next 12-18 months.

The recapitalisation plan that has benefited two Indian banks to get a status upgrade on international platform was planned in October 2017. The government has pledged to infuse a total of Rs 1.53 lakh crore into the public-sector banks by March 2019 – of which, Rs 80,000 crore into 20 PSBs by March 2018 in the form of recapitalisation bonds, while Rs 10,000 crore will be infused from budgetary sources by March 2018. And the remaining Rs 65,000 crore will be infused by the end of fiscal year 2018-19. So based on these huge recapitalisation figures, BI will receive Rs 5,160 crore and IOB will receive Rs 4,690 crore in new capital; and that is the reason behind Moody’s mood change.