S&P downgrades Bank of India and Syndicate Bank below the investment grade, changes outlook on Indian Overseas Bank
Mumbai: International ratings agency, S&P Global Ratings, revised on Monday its ratings for three public sector banks and changed its outlook for one bank on weakening asset quality.
Two of those downgraded—Bank of India and Syndicate Bank—have fallen below investment grade.
In the case of BoI, the overall rating of the lender has been revised to BB+ from its previous rating of BBB-.
The lowest investment grade under S&P’s scale is BBB-, which is also India’s sovereign rating.
“We downgraded BoI because we expect the bank’s asset qua ity to remain weak over the next 12 months, following a recent deterioration," said S&P Global Ratings credit analyst Amit Pandey.
The downgrade will hurt the bank’s plans to raise capital through the bond market.
BoI reported a loss of ₹ 3,587 crore for the quarter ended 31 March, owing to higher provisions against bad loans. In its guidance, the bank’s management said that it plans to raise ₹ 8,000-8,500 crore in 2016-17, parts of which are to be raised through the debt market.
In case of Syndicate Bank, the overall rating and the ratings on all domestic and foreign long-term borrowings, have been brought down to BB+ from BBB-. S&P noted that Syndicate bank had reported losses worth ₹ 2,160 crore in the March quarter, owing to increased provisioning against bad loans.
The agency expects Syndicate Bank’s asset quality to be weak over the next 12 months. Similarly, for Indian Overseas Bank (IOB), which was downgraded to sub-investment category in the past, S&P has downgraded the rating on long-term borrowings to BB from BB+.
IOB’s ratings have now been removed from Creditwatch, where S&P had placed them with negative implications on 16 February, the rating agency said in its statement.
“The stable outlook on IOB reflects our expectation that there is a very high likelihood that the government of India will continue to support the bank, including through ongoing capital infusions, and help the bank maintain its regulatory minimum capital requirements over the next 12 months at least," Pandey said.
The ratings agency revised its outlook on Union Bank of India to negative from stable. Union Bank’s exposure to stressed segments—such as infrastructure (13.6% of domestic advances), metals (5.2%), and textiles (2.9%) —could further weaken its asset quality, S&P noted.
Indian banks have been accumulating bad loans owing to an asset quality review (AQR) conducted by the Reserve Bank of India (RBI) in December, where the regulator had highlighted a set of accounts which attracted higher provisioning. Banks were asked to reclassify some of these accounts as non-performing assets (NPAs) over the two quarters between October 2015 and March 2016.
Gross NPAs of the 38 out of 39 listed banks stood at an unprecedented ₹ 5.7 trillion, as of 31 March, as lenders added a trillion rupees worth of bad loans in each of the fiscal quarters ended December 2015 and March 2016, according to data compiled by Capitaline. In comparison, aggregate loan disbursal in the period expanded by only 4%, Mint reported on Monday.