March 10, 2016
Mumbai
CRISIL downgrades eight public sector banks
Changes outlook to ‘Negative’ on five others
Steep rise in NPAs, expected further surge in stressed assets and the consequent hit on profitability
and capital will dent credit profiles
CRISIL has downgraded its ratings on the debt instruments of eight public sector banks (the rating on one
bank has been placed on “Watch negative”), and revised its outlook on five others to ‘Negative’ from ‘Stable’.
This is in addition to another rating downgrade and an outlook revision to ‘Negative’ on two public sector
banks (PSBs) over the past month. The ratings on instruments of ten other CRISIL-rated PSBs have been
reaffirmed wherein four of them carry a “Negative” outlook.
CRISIL’s actions are driven by the expectation that the asset quality problems being faced by PSBs will
remain acute and continue through most of the next fiscal. The resultant impact on profitability and
capitalisation can further dent the credit profiles over the medium term.
On February 10, 2016, CRISIL had issued a Credit Alert titled ‘Heightened asset quality stress to dent PSB
credit profiles’, which highlighted that CRISIL was in the process of assessing the impact of the deterioration
in asset quality and profitability on the credit profiles of the rated PSBs.
Significant stress in the corporate loan book of PSBs is expected to result in their weak assets ballooning to
Rs 7.1 lakh crore by March 31, 2017 (11.3 percent of total loan book) from around Rs 4.0 lakh crore as on
March 31, 2015 (7.2 percent of loan book). Over the next few quarters, CRISIL expects slippages to NPAs
to remain high driven by stretched cash flows of highly leveraged corporates (mainly in the vulnerable
sectors such as infrastructure, metals and real estate), continued proactive recognition of stressed assets
by banks, and limited ability of banks in the current environment to recover from exposures to large
corporates that have slipped into NPAs.
Further, the earnings profile of most PSBs has deteriorated with many expected to report a full-year net loss
this fiscal. With the banking system having to migrate to the marginal cost of funds-based lending rate, or
MCLR, regime from April 1, 2016, and the proportion of zero income-generating bad assets in the loan book
of PSBs rising, net interest margin will come under fresh pressure in the near-term. This, coupled with loan
loss provisioning at a number of PSBs surpassing pre-provisioning profit, due to increased slippages and a
rising inventory of ageing NPAs, could result in many PSBs reporting a loss even for the next fiscal.
CRISIL’s ratings on PSBs continue to factor in support from its majority shareholder, the Government of
India. Given that net worth coverage for un-provided weak assets is very low at ~1.5 times, PSBs will have
to raise a substantial amount of capital to maintain sufficient cushion against asset-side risks and to meet
the Basel III minimum capital requirements.
Despite the recent relaxation of capital regulations by the Reserve Bank of India for computing capital ratios
and expectation of lower growth upto 2019, equity capital support of Rs 70,000 crore committed by the
government in the next four years under the Indradhanush plan will not be sufficient. This is because the
Tier 1 capital requirement for PSBs, upto 2019 has increased from our earlier estimate largely on account
of sharp decline in their profitability.
Given that capital raising through the non-government route will be a challenge for PSBs because of their
weak financial performance and low valuations, and in the absence of any commitment of enhanced capital
support from the government, CRISIL has lowered its floor rating for corporate credit rating (or Tier II bonds)
for PSBs to ‘CRISIL A+’ from the current ‘CRISIL AA-’. Most ratings, however, for now continue to remain
in the AA category or higher.
March 10, 2016
1
www.crisil.com
Annexure 1: List of rating actions on PSBs
Banks
Allahabad
Bank
Tier II Bonds
(Under Basel II &
Basel III) /
Infrastructure
Bonds
CRISIL
AA/Negative
(Reaffirmed)
Andhra
Bank
CRISIL
AA+/Negative
(Outlook revised
from Stable)
Bank of
Baroda
CRISIL
AAA/Negative
(Outlook revised
from Stable)
Bank of
India
Bank of
Maharashtra
CRISIL
AA+/Negative
(Downgraded from
CRISIL
AAA/Negative)
CRISIL
AA/Negative
(Reaffirmed)
Canara
Bank
CRISIL
AAA/Negative
(Outlook revised
from Stable)
Central
Bank of
India
CRISIL AA/Negative
(Downgraded from
CRISIL
AA/Negative)
Corporation
Bank
CRISIL
AA/Negative
(Downgraded from
CRISIL
AA+/Stable;
Outlook revised to
negative)
Dena Bank
IDBI Bank
Indian Bank
March 10, 2016
CRISIL AA/Negative
(Downgraded from
CRISIL
AA+/Negative)
CRISIL
AA/Negative
(Downgraded from
CRISIL
AA+/Negative)
CRISIL
AAA/Negative
(Reaffirmed)
Hybrid
Instruments
(Under Basel
II)
CRISIL AA/Negative
(Reaffirmed)
CRISIL
AA/Negative
(Outlook
revised from
Stable)
CRISIL
AAA/Negative
(Outlook
revised from
Stable)
CRISIL
AA+/Negative
(Downgraded
from CRISIL
AAA/Negative)
CRISIL AA/Negative
(Reaffirmed)
CRISIL
AAA/Negative
(Outlook
revised from
Stable)
CRISIL
A+/Negative
(Downgraded
from CRISIL
AA-/Negative)
CRISIL AA/Negative
(Downgraded
from CRISIL
AA/Stable;
Outlook
revised to
negative)
CRISIL
A+/Negative
(Downgraded
CRISIL
AA/Negative)
CRISIL AA/Negative
(Downgraded
from CRISIL
AA/Negative)
CRISIL
AAA/Negative
(Reaffirmed)
2
Tier I Bonds
(Under Basel
III)
Fixed Deposit
Certificate of
Deposits
CRISIL
A/Negative
(Reaffirmed)
CRISIL AA/Negative
(Outlook
revised from
Stable)
CRISIL
A+/Negative
(Assigned)
CRISIL A1+
(Reaffirmed)
CRISIL
A+/Negative
(Reaffirmed)
CRISIL A1+
(Reaffirmed)
CRISIL A1+
(Reaffirmed)
CRISIL A1+
(Reaffirmed)
CRISIL
A/Negative
(Downgraded
from CRISIL
AA-/Stable;
Outlook
revised to
negative)
CRISIL A/Negative
(Downgraded
from CRISIL
AA-/Negative)
CRISIL
A/Negative
(Downgraded
from CRISIL
AA-/Negative)
CRISIL
AA/Negative
(Reaffirmed)
FAAA/Negative
(Outlook revised
from Stable)
CRISIL A1+
(Reaffirmed)
CRISIL A1+
(Reaffirmed)
FAAA/Negative
(Outlook revised
from Stable)
CRISIL A1+
(Reaffirmed)
www.crisil.com
Indian
Overseas
Bank
CRISIL
A+/Negative
(Downgraded from
CRISIL AA/Negative)
CRISIL A/Negative
(Downgraded
from CRISIL
A+/Negative)
Oriental
Bank of
Commerce
Punjab
National
Bank
CRISIL
AAA/Negative
(Outlook revised
from Stable)
Punjab &
Sind Bank
CRISIL
AA/Negative
(Outlook revised
from Stable)
State Bank
of Bikaner
and Jaipur
State Bank
of
Hyderabad
CRISIL AAA/Stable
(Reaffirmed)
CRISIL AAA/Stable
(Reaffirmed)
State Bank
of India
CRISIL AAA/Stable
(Reaffirmed)
State Bank
of Mysore
CRISIL AAA/Stable
(Reaffirmed)
State Bank
of Patiala
State Bank
of
Travancore
Syndicate
Bank
UCO Bank
Union Bank
of India
United Bank
of India
March 10, 2016
CRISIL AAA/Stable
(Reaffirmed)
CRISIL AA
(Downgraded from
CRISIL
AA+/Stable;
Placed on 'Rating
Watch with
Negative
Implications')
CRISIL
AA/Negative
(Downgraded from
CRISIL
AA+/Negative)
CRISIL
AAA/Negative
(Reaffirmed)
CRISIL AA/Negative
(Reaffirmed)
FAA/Negative
(Downgraded
from
FAA+/Negative)
CRISIL A1+
(Reaffirmed)
FAAA
(Reaffirmed)
CRISIL A1+
(Reaffirmed)
CRISIL
AAA/Negative
(Outlook
revised from
Stable)
CRISIL
AAA/Stable
(Reaffirmed)
CRISIL
AAA/Stable
(Reaffirmed)
CRISIL
AAA/Stable
(Reaffirmed)
CRISIL
AAA/Stable
(Reaffirmed)
CRISIL
AAA/Stable
(Reaffirmed)
CRISIL
AAA/Stable
(Reaffirmed)
CRISIL AA
(Downgraded
from CRISIL
AA+/Stable;
Placed on
'Rating Watch
with Negative
Implications')
CRISIL AA/Negative
(Downgraded
from CRISIL
AA/Negative)
CRISIL
AAA/Negative
(Reaffirmed)
CRISIL
A/Negative
(Reaffirmed)
3
CRISIL A1+
(Reaffirmed)
FAAA/Stable
(Reaffirmed)
CRISIL A1+
(Reaffirmed)
CRISIL A1+
(Reaffirmed)
CRISIL A/Negative
(Downgraded
from CRISIL
A+/Negative)
CRISIL
AA/Negative
(Reaffirmed)
CRISIL A1+
(Reaffirmed)
CRISIL A1+
(Reaffirmed)
CRISIL A1+
(Reaffirmed)
www.crisil.com
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