Icra downgraded Syndicate Bank’s long-term rating for the Rs 3,250-crore Basel-III compliant tier-II bonds to AA (hyb) from AA+(hyb). The outlook on the rating was negative.
Icra downgraded Syndicate Bank’s long-term rating for the Rs 3,250-crore Basel-III compliant tier-II bonds to AA (hyb) from AA+(hyb). The outlook on the rating was negative. In case the bank is unable to raise sufficient equity capital and restore the capital ratios above the regulatory requirement, the rating may be revised downwards.
The bank’s long-term rating downgrade factors in its weak financial performance as reflected in the elevated level of fresh slippages, increasing non-performing advances (NPA) level, high losses and consequently weakened capital ratios, the report added.
The high level of slippages will continue in the financial year 2019, the credit provisions are expected to remain significantly elevated in relation to core operating profits before treasury gains/losses and credit provisions. This is expected to result in high equity capital requirements during the year. Ability to raise equity capital and restore core equity (CET-I) levels above the regulatory requirements will remain a key rating sensitivity, Icra noted.
The negative outlook factors in the expectations of continued weakness in the asset quality, elevated credit provisioning requirements and consequently sizeable capital requirement for meeting the regulatory capital ratios during FY19.
Inclusion of the bank in the prompt corrective action (PCA) framework, which would restrict growth and increase capital requirements, will also be a credit negative. Earlier, the bank’s net NPA is more than 6%, which is a criterion for inclusion in the RBI’s PCA framework. A CET-I capital ratio lower than the regulatory level is also a criterion for inclusion in the PCA framework.