Credit rating agency, Moody's Investors Service on Thursday said that the government fund requirements for public sector banks (PSBs) will lower substantially to about Rs 20,000-25,000 crore by March 2020 on the back of improving asset quality.

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The statement by Moody's came out just when the government announced to pump in an additional Rs 48,239 crore in 12 PSBs this fiscal to help them maintain regulatory capital requirements and finance growth plans. In the current FY19, Rs 1,00,958 crore has already been infused into these banks.

Moody's further added, "PSBs will require a total of about Rs 20,000-25,000 crore in external capital in fiscal 2020 to maintain (common equity Tier-1) CET-1 ratios of about 8.5%. This is a significant reduction from the Rs 1.96 lakh crore injected by the government in the past two years."

The credit rating agency believes that the current infusion of capital will improve the solvency of the banks, but will not fully resolve legacy problem issues. Moody's Vice-President and Senior Credit Officer Alka Anbarasu said the capital infusions will help the PSBs meet regulatory capital requirements and improve provisioning coverage.

The capital infusion will help the banks to raise capital from the equity markets as their financials will improve, which will reduce the possibility of another capital injections from the government. However, many weaker banks will continue to find it difficult to generate sufficient capital internally to meet their capital needs, Anbarasu said.