CARE Ratings on Thursday revised ratings on Dena Bank’s various debt instruments worth R3,325 crore, according to a report on the rating agency’s website.
CARE said that the revision takes into account significant deterioration in bank’s asset quality and profitability parameters. “The ratings continue to factor in the majority ownership by the central government as well as expectations of future,” it said.
Dena Bank’s asset quality had deteriorated in the second quarter of this financial year with the gross non-performing assets (NPA) as a ratio of gross advances rising to 6.84% from 6.20% in the previous quarter and the net NPAs rising to 4.65% from 4.24% in the first quarter.
Ratings on Dena Bank’s Basel-III-compliant tier-II bonds worth R800 crore and Basel-II compliant lower tier-II bonds worth R1,400 crore have been revised to CARE AA from CARE AA+, according to the rating agency’s report.
It has also revised the ratings on the bank’s Basel-II compliant perpetual bonds worth Rs 125 crore to CARE AA- from CARE AA.
CARE said it has rated these perpetual bonds one notch lower than the lower tier-II bonds in view of their increased sensitiveness to Dena Bank’s capital adequacy ratio (CAR), capital raising ability, and profitability during the long tenure of the instruments.
“The ratings factor in the additional risk arising due to the existence of the lock-in clause in hybrid instruments,” the report said.
It has also downgraded the ratings on the bank’s Basel-III-compliant additional tier-I perpetual bonds worth R1,000 crore to CARE A+ from CARE AA-.
CARE said it has rated the aforesaid bonds after taking into consideration various factors including the fact that the bank has full discretion at all times to cancel coupon payments.
The ratings agency reasoned that the coupon is to be paid out of current year’s profits and if the payment of such coupon is likely to result in losses during the current year, the balance of coupon payment may be made out of revenue reserves and/or credit balance in profit and loss account provided the bank meets the minimum regulatory requirements for Common Equity Tier I , Tier I and Total Capital Ratios and capital buffer frameworks as prescribed by the RBI.
In the second quarter of this financial year, Dena Bank had posted a 24.85% fall in its net profits compared to the same period a year ago.
Another reason given by CARE on the rating revision of its Basel-III-compliant additional tier-I perpetual bonds is that the debt instrument may be written down upon CET I breaching the pre-specified trigger of 5.5% before March 31, 2019, and 6.125% on and after March 31, 2019, or written off or converted into common equity shares on occurrence of the trigger event called point of non-viability (PONV). The PONV trigger shall be determined by the RBI, it said.