Crisil downgrades debt instruments of 8 public sector banks

By: |
Updated: March 11, 2016 11:37:31 AM

Credit rating agency CRISIL on Thursday downgraded the debt instruments of eight public sector banks (PSBs) – Bank of India, Central Bank of India, Corporation Bank, Dena Bank, IDBI Bank, Indian Overseas Bank, Syndicate Bank and UCO Bank.

PSu banks downgradePSU banks downgrade: While Bank of India has been downgraded from AAA with a negative outlook to AA+ with a negative outlook, Central Bank of India has been downgraded from AA with a negative outlook to AA- with a negative outlook. (Photo: Reuters)

Credit rating agency CRISIL on Thursday downgraded the debt instruments of eight public sector banks (PSBs) – Bank of India, Central Bank of India, Corporation Bank, Dena Bank, IDBI Bank, Indian Overseas Bank, Syndicate Bank and UCO Bank. It also revised the outlook on five others – Bank of Baroda, Andhra Bank, Canara Bank, Punjab National Bank and Punjab & Sind Bank – from ‘stable’ to ‘negative’.

While Bank of India has been downgraded from AAA with a negative outlook to AA+ with a negative outlook, Central Bank of India has been downgraded from AA with a negative outlook to AA- with a negative outlook. Similarly, Corporation Bank has been downgraded from AA+ with a stable outlook to AA with a negative outlook, Dena Bank from AA+ with a negative outlook to AA- with a negative outlook, IDBI Bank from AA+ with a negative outlook to AA with a negative outlook, Indian Overseas Bank from AA- with a negative outlook to A+ with a negative outlook and UCO Bank from AA+ with a negative outlook to AA with a negative outlook.

crisil

Syndicate Bank, on the other hand, while being downgraded from AA+ with a stable outlook to AA, has also been placed on ‘watch negative’.

Giving its rationale for the downgrades, the rating agency noted, “Significant stress in the corporate loan book of PSBs is expected to result in their weak assets ballooning to Rs 7.1 lakh crore by March 31, 2017 from around Rs 4 lakh crore as on March 31, 2015.” CRISIL also noted that it “expects slippages to NPAs to remain high driven by stretched cash flows of highly leveraged corporates, mainly in sectors such as infrastructure, metals and real estate; continued proactive recognition of stressed assets by banks; and limited ability of banks in the current environment to recover from exposures to large corporates that have slipped into NPAs.

CRISIL doesn’t expect the recent move by Reserve Bank of India (RBI) to allow banks to recognise several assets like revaluation reserves as common equity tier 1 (CET1) capital, and the government’s Indradhanush plan to infuse Rs 70,000 crore into PSBs over the next four years, ‘sufficient’ since the tier 1 capital requirement for PSBs 2019 has risen due to a decline in profits.

Last week, RBI had revised its regulations and allowed banks to recognise 45% of their revaluation reserves, 75% of their foreign currency translation reserves (FCTR) and deferred tax assets (DTAs) related to timing difference up to a maximum of 10%, as CET1 capital.

As per estimates, it had freed up capital in excess of R25,000 crore and reduced PSBs’ need to raise fresh capital to adhere to RBI’s capital adequacy norms.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1Concor share sale gets 10% morning bids from retail investors
2Tata Motors, SpiceJet among 5 stocks to bet on amid bearish market projections
3Metal stocks gain as Cabinet clears amendments to MMDR act