Two international rating agencies--Moody's and Fitch--today downgraded the debt rating of the nation's top three public sector banks, State Bank of India, Bank of Baroda and Punjab National bank, citing worsening credit quality and recapitalisation concerns.
While Moody's slashed SBI's
senior unsecured debt and local currency deposit rating by a notch to Baa3 from Baa2, citing asset quality and recapitalisation concerns. Fitch Ratings earlier in the day dowgraded the viability ratings of Punjab National Bank (PNB) and Bank of Baroda (BoB) by one notch to 'bb+' from 'bbb-' but retained their long-term issuer default ratings at 'bbb-'.
"A combination of increasing pressure on credit fundamentals and ongoing reliance on fiscally constrained government to maintain capital at levels desired by regulators argue for appropriateness of supported debt and deposit ratings of SBI at a level no higher than the sovereign," Moody's said in a late evening statement. When contacted an SBI spokesperson refused to comment saying the management is discussing the development. SBI's revised rating for the senior unsecured debt and local currency deposit instruments would now be Baa3 from the earlier Baa2, Moody's said, while revising down its outlook on the bank's financial strength rating to negative from stable. On downgrading BoB, Fitch said, 50 per cent of its loan book (both onshore and offshore loans) is forex denominated which could be a greater source of instability to its credit profile given the recent currency volatility.
Downgrading the second largest public sector lender, Fitch said, "BoB's stressed assets are equivalent to 85 per cent of equity. While this is a better buffer than PNB's, this is unlikely to be maintained given the level of deterioration that has taken place."
"The downgrade to PNB's viability ratings reflects its already weak equity position and the expected further weakening of its asset quality profile from current levels, which means the state-run lender would take longer to bounce back even under a cyclical recovery," Fitch said. Giving the rationale for the action on SBI, Moody's said the ongoing gloom on the economic front will result in the asset quality, with its loan impaired ratio already touching 8.6 per cent, with a heavy increase in the June quarter. "While there may be a seasonal element to this rise, the spike in NPLs illustrates that the bank's asset quality is under pressure," Moody's said.
On the recapitalisation front, Moody's said SBI will have to compete with other state-run banks for its share in the Rs. 14,000 crore allocated in the Budget. The high loan growth of up to 20 per cent as against the earlier 15 per cent, increasing asset quality troubles and lower margins indicate that the bank's capital levels will decline without external injection, it said, adding that SBI will require an infusion this fiscal.
"Given the importance of expected capital injections to maintain SBI's Tier 1 ratio above the regulator's 8 per cent target, Moody's believes it is no longer appropriate to assign a higher supported rating to SBI than that of the sovereign," it said. Moody's said though the outlook of the rating is "stable", un upgrade on the revised rating is "unlikely" given the challenging economic climate. The deteriorating asset quality and issues over low tier-I capital had led Moody's to downgrade SBI's overall rating to 'D+' in late 2011. The D+ credit rating has been re-affirmed by the rating agency, Moody's said. PNB's stressed assets stood close to 15 per cent of its loans at FY13 as against 11 per cent in FY12, the highest among rated state-owned banks it rates, Fitch said, adding "notwithstanding PNB's funding and profitability strength, we maintain a negative bias on the bank's viability ratings." BoB's gross NPLs have risen 84 per cent in April-June 2013 year-on-year, the report noted.
Fitch has also affirmed the long-term issuer default ratings of sBI, Canara Bank, IDBI Bank, BoB New Zealand, ICICI Bank and Axis Bank at 'bbb-', and the viability ratings of SBI, ICICI and Axis at 'bbb-', Canara at 'bb+' and IDBI at 'bb'.
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