International ratings agency Moody’s Investors Services downgraded rating indicators for three large public sector banks on Friday, citing growing concerns about the macroeconomic environment and its impact on these banks.
For Bank of Baroda (BoB), Punjab National Bank (PNB) and Canara Bank, the rating agency has downgraded the bank financial strength ratings (BFSRs), baseline credit assessments (BCAs), the local currency deposit ratings and the senior unsecured debt ratings. The outlook on the ratings for BoB and Canara Bank is negative, while for PNB the rating is stable.
In the case of Union Bank of India, the ratings agency affirmed all previous ratings but changed the outlook on the bank’s financial strength rating to negative.
The ratings and outlook downgrades were influenced by declining asset quality, weak capital buffers, low provisioning levels and significant exposure to the power, infrastructure, and iron and steel sectors, said the agency in a release.
Moody’s also noted that public sector banks continue to report deteriorating asset quality with the sum of gross non-performing loans (NPLs) and restructured loans as a percentage of gross loans at above 8% as of end-March 2013.
“These problem assets indicate a risk that capital ratios will remain under pressure, a situation which is compounded by the relatively low capacity of the banks for internal capital generation,” said Moody's.
For BoB, gross NPAs were at Rs 9,762.55 crore (3% of advances) as on June 30. Its exposure to the power sector was more than 16% of the Rs 3,21,314 crore worth of global advances. For PNB, the gross NPA number stood at Rs 15,091 crore (4.8% of advances). Exposure to infrastructure was close to 17% to the total advances worth Rs 3,05,066 crore.
Similarly, Canara Bank reported gross NPAs worth Rs 7,329 crore (2.9% of advances) at the end of the first quarter. Exposure to infrastructure was at 19.2% of total advances of Rs 2,49,891 crore. Of this, power was the largest contributor, at close to 13% of total advances.
The BCA downgrades for the three banks reflect the challenges of the current macroeconomic environment, which have been worsened by the weakening rupee and high levels of inflation,