Ratings agency Fitch on Tuesday downgraded Punjab National Bank’s (PNB’s) viability rating — a parameter to measure creditworthiness — by a notch to ‘bb’ and reaffirmed ratings of nine other banks like State Bank of India, ICICI Bank and Bank of Baroda, reports fe Bureau in Mumbai.
The agency said PNB’s viability rating (VR) has been downgraded to reflect the growing risk to the bank’s capital position from its mounting stock of stressed assets, which has risen at a faster rate than its capital replenishment. Fitch said it expects capital buffers are unlikely to improve significantly even though the government is likely to inject capital into the bank in the current financial year. “The bank’s large stressed assets stock (is) potentially taking longer to resolve than that of its peers,” the rating agency said.
It explained that despite the fact that the rise in new bad loans has slowed in recent quarters and the pace of recoveries has been on the rise, PNB’s unreserved bad loans to equity remains high even after the capital injection of Rs 1,730 crore.
“Fitch believes that the bank’s recovery could prove to be more protracted than other similar-sized peers because of these stressed assets,” it added.
Fitch added that Rs 70,000 crore capital injection in public sector banks (PSBs) by FY19 (with Rs 25,000 crore in FY16) should provide some support for the state-owned banks’ ailing balance sheets, but may not be sufficient, depending on banks’ credit growth expectations and persistent low equity valuations. PNB’s VR, it said, would be vulnerable to continued deterioration of its asset quality from current levels, if it is not matched by adequate capital reinforcement.
While Indian banks’ stressed asset ratio rose to 11.1% in FY15 from 10% in FY14, the same ratio for PSBs rose to 13.5% from 12% in FY14.Commenting on SBI, Fitch said its viability rating is sensitive to unexpected deterioration in capitalisation and asset quality and will also be sensitive to downward movement in the sovereign rating or outlook.
“Bank of Baroda’s VR is stable at the current level due to better capital metrics and lowest exposure to stressed sectors among peers. The VRs of Bank of Baroda, Canara Bank and Indian Bank factor in government capital increases, the absence of which could undermine capital buffers if asset quality continues to weaken sharply,” Fitch said.