“The downgrades for Bank of Baroda, Canara Bank and PNB, and the negative outlook for 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,” the rating agency 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 62.03 against the US dollar in intra-day trade. India’s wholesale price inflation spiked to a 5-year high of 5.79% in July.
“Measures by the RBI to support the currency have not reversed the depreciation, implying that interest rates may remain elevated for a longer time,” Moody’s said. “Moody’s expects public sector banks in particular to find difficulty in responding to slower economic growth, deteriorating asset quality, and declining margins.”