ICRA downgrades Rs 2,285 crore Basel II bonds of Central Bank

By: | Published: August 9, 2017 3:43 AM

ICRA, Central Bank of IndiaThe bank’s asset quality witnessed deterioration during Q1FY18, with gross and net NPAs at 18.23% and 11.04%, respectively.

Rating agency ICRA on Tuesday downgraded ratings of Central Bank of India’s Rs 2,285-crore Basel II upper tier-II bond programme to ‘A-’ from ‘A’, citing deterioration in capital adequacy ratios. The outlook on the ratings remained negative, the agency said.

“The downgrade in ratings for upper tier-II bond programme takes into account the deterioration in the bank’s capitalisation ratios with the bank reporting CRAR, Tier I and CET1 of 9.61%, 7.47% and 7.47%, respectively, as on June 30, 2017 from 10.95%, 8.62% and 8.62%, respectively, as on March 31, 2017,” ICRA said.

The agency added that while the capital ratios are above the minimum ratios (7% tier-I and 9% CRAR) required for servicing the coupon on Basel II instruments, the capital ratios of the bank stand lower than the minimum capital requirements under Basel III.

“With profitability expected to remain under pressure, as per ICRA’s estimates, Central Bank would need to raise tier-I capital of around Rs 4,000-5,000 crore (about 25%-30% of its current market capitalisation) during FY18 to FY19 to meet the minimum regulatory capital requirements,” ICRA said, adding that the capital estimates will also increase to the extent of losses reported by the bank during the projected period.

“Given the government shareholding at 81.28% as on June 30, 2017, the bank has considerable scope to raise capital from non-government sources while maintaining the government shareholding above 51%,” the rating agency said.

The bank’s asset quality witnessed deterioration during Q1FY18, with gross and net NPAs at 18.23% and 11.04%, respectively, compared with 17.81% and 10.20%, respectively, as on March 31, 2017.

Fresh NPA generation rate during the quarter increased to 16% (annualised) as compared to 6% during Q4FY2017. Standard restructured assets of the lender stood at 3.85% of advances as on June 30, 2017.

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