Rating agency also revises outlook of 5 other banks to ‘negative’ on loan quality concerns
Mumbai, March 10:
Expecting the asset quality problems being faced by public sector banks to remain acute and continue through most of the next fiscal, Crisil on Thursday downgraded its ratings on the debt instruments of eight banks and revised its outlook on five other to ‘negative’ from ‘stable’.
The credit rating agency warned that the earnings profile of most PSBs has deteriorated with many expected to report a full-year net loss this fiscal. Further, many PSBs may report a loss even for the next fiscal.
The eight public sector banks (PSBs) whose debt instrument ratings have been downgraded are — Bank of India, Central Bank of India, Corporation Bank, Dena Bank, IDBI Bank, Indian Overseas Bank, Syndicate Bank, and UCO Bank.
The five PSBs whose outlook has been revised by Crisil to ‘negative’ are — Andhra Bank, Bank of Baroda, Canara Bank, Punjab National Bank, and Punjab & Sind Bank.
In the case of Syndicate Bank, its rating has also been placed on ‘rating watch with negative implications’.
Continued stress
Crisil said the continued asset quality problems will have its impact on PSBs’ profitability, and capitalisation can further dent the credit profiles over the medium term.
The agency estimated that significant stress in the corporate loan book of PSBs is expected to result in their weak assets ballooning to Rs. 7.1 lakh crore by March 31, 2017 (11.3 per cent of total loan book) from about Rs. 4 lakh crore as on March 31, 2015 (7.2 per cent of loan book).
Over the next few quarters, Crisil expects slippages to non-performing assets (NPAs) to remain high, driven by stretched cash flows of highly-leveraged corporates (mainly in vulnerable sectors, such as infrastructure, metals and real estate), continued proactive recognition of stressed assets by banks, and limited ability of banks in the current environment to recover from exposure to large corporates that have slipped into NPAs.
With the banking system having to migrate to the marginal cost of funds-based lending rate, or MCLR, regime from April 1, 2016, and the proportion of zero income-generating bad assets in the loan book of PSBs rising, net interest margin will come under fresh pressure in the near term.
“This, coupled with loan loss provisioning at a number of PSBs surpassing pre-provisioning profit due to increased slippages and rising inventory of ageing NPAs, could result in many PSBs reporting a loss even for the next fiscal,” said Crisil.
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