Moody's upgrades PNB, Canara Bank, Bank of Baroda's ratings; affirms SBI's deposit ratings
Moody's on Friday affirmed long-term deposit rating of State Bank of India (SBI)
Moody's Investors Service has affirmed the Baa3 long-term local and foreign currency bank deposit ratings of State Bank of India (SBI). Moody's has also upgraded SBI's Baseline Credit Assessment (BCA) and additional tier 1 securities (AT1) program rating to ba1 and (P)B1 from ba2 and (P)B2, respectively. Meanwhile, the rating agency has also upgraded ratings for Punjab National Bank (PNB), Canara Bank and Bank of Baroda (BoB) on improving credit profile.
"Outlook on long-term ratings of all four banks remain stable.. The rating upgrades "reflect an improvement in India's macro profile to Moderate from Moderate, improving credit metrics of the four banks and Moody's continued assumption of very high level of government support to the banks in times of need," the ratings agency said on Friday.
“Credit conditions in India have gradually improved, with a significant reduction in the banks' stock of legacy problem loans over the past three years. Corporates' financial health has also improved following a decade of deleveraging, while stress among non-bank financial institutions has abated. In addition, retail loans have performed well despite pandemic-induced economic stresses, indicating better underwriting quality and relatively low household leverage in India compared to those in many other Asian countries," Moody's said.
Still, loans to small and medium-size enterprises continue to pose risks to the banks' asset quality because Moody's expects this segment to be the most vulnerable to interest rate rises.
Moody's expects the banks' asset quality to be healthy over the next 12-18 months, helped by a supportive operating environment, improved corporate balance sheets, and better retail underwriting quality.
The improvement in asset quality has translated into higher profitability because of lower credit costs and the rating agency expects this increase in profitability to be sustainable over the next 12-18 months.
“The banks' capitalization has increased over the past two years, driven by capital raisings from equity markets. Their capitalization will remain stable over the next 12-18 months. Funding and liquidity will remain key credit strengths of these banks given their status as public sector banks in India and linkages with the government, which result in good deposit franchises."
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