Mumbai: Credit rating agency Moody’s Investors Service on Friday said it had downgraded the so-called financial strength ratings and baseline credit assessments of Bank of Baroda, Canara Bank and Punjab National Bank (PNB).
It also said the outlook on Union Bank of India’s financial strength ratings had also been changed to negative.
“The downgrades for Bank of Baroda, Canara Bank and Punjab National Bank, and the negative outlook to Union Bank of India primarily reflect the challenges of the current macroeconomic environment, which have been exacerbated by the depreciating rupee and high levels of inflation,” Moody’s said.
Bank of Baroda and Canara Bank’s rating was downgraded to ba2 from ba1, while PNB’s rating was downgraded to ba3 from ba1.
The rupee on Friday touched a record low of Rs.62.01 per dollar in intra-day trading after opening at Rs.61.35. India’s wholesale price inflation spiked to a 5-year high of 5.79% in July.
“Measures by the Reserve Bank of India (RBI) to support the currency have not reversed the depreciation, implying that interest rates may remain elevated for a longer time. Against such a backdrop, Moody’s expects public sector banks in particular to find difficulty in responding to slower economic growth, deteriorating asset quality, and declining margins,” Moody’s said in a statement.
The deteriorating macro-economic situation apart, Moody’s pointed to the the worsening asset quality at Indian banks, with total non-performing assets and restructured loans rising above 8% of their loan book.
“These problem assets indicate a risk that capital ratios will remain under pressure; a situation which is compounded by the relatively low capacity of the banks for internal capital generation..,” Moody’s said.
For the fiscal ending March 2014, the Indian government has set aside Rs.14,000 crore in its budget to raise bank capital levels, “and we expect recipients will include the four mentioned,” Moody’s said.
Shares of all four banks fell on Friday. Canara Bank shares ended at Rs.224.15 on the BSE, down 9.96% from the previous close, while Bank of Baroda fell 8.5% to Rs.479.10. Union Bank of India shares fell 5.98% to Rs.112.35 and Punjab National Bank declined 7% to Rs.500.05. The BSE Bankex fell 5.55% to 10,800.62 points. The benchmark Sensex dropped 3.97% to 18,598.18 points.