The government’s announcement of capital support to public sector banks has led to rating agency CRISIL upgrading the ratings of eight public sector and ratings outlook of another three banks.
These rating actions are based on CRISIL’s reassessment of the support the public sector banks are likely to receive from their majority shareholder.
In 2008-09, government infused Rs 1,650 crore of capital into three public sector banks and is committed to infusing Rs 2,150 crore more by the end of September 2009.
The ratings upgrade happened despite CRISIL expecting non-performing assets of banks to triple over three years. “Capitalisation levels would be enough to cover the deterioration in asset quality,” said Raman Uberoi, Senior Director, CRISIL.
Following the reassessment, ratings on the lower tier-II bonds of PSBs, which earlier spanned the range from ‘AAA’ to ‘AA-’, now lie between ‘AAA’ and ‘AA’. The ratings on the banks’ hybrid instruments too have been appropriately revised.
“These measures represent a stronger and more specific articulation of government’s intent than in the past. This articulation is a key factor in CRISIL’s reassessment of the expected support,” said Uberoi.
CRISIL has upgraded ratings of Allahabad Bank, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, Corporation Bank, Dena Bank and IDBI Bank. Punjab & Sind Bank UCO Bank and Union Bank of India have seen their outlook revised upwards.
Pawan Agrawal, director, CRISIL, said, “Since Indian banks are already well-capitalised, we believe that this enhanced commitment from the government towards ownership and capital support signals that it will do everything possible to further strengthen the PSBs. Given these developments, we have reassessed our rating approach to PSBs. Of course, the standalone credit profiles of PSBs continue to be important drivers of the ratings.”