Moody's upgrades ratings of PNB, BoB, Canara Bank; affirms SBI at Baa3
2 min read . Updated: 20 Jan 2023, 03:13 PM IST
Premium- The four banks' baseline credit assessment upgrades are a reflection of their increased asset quality and profitability, Moody's said
Mumbai: Moody's Investors Service on Friday upgraded the long-term local and foreign currency bank deposit ratings of state-owned Bank of Baroda, Canara Bank, and Punjab National Bank. The ratings firm also affirmed State Bank of India's long-term local and foreign currency bank deposit ratings to Baa3.
Moody’s upgraded BoB, Canara Bank, and PNB to Baa3 from Ba1. The baseline credit assessments (BCA) of these three banks were also upgraded to ba3 from b1.
Moody's has upgraded SBI's BCA and additional tier 1 securities (AT1) programme rating to ba1 and (P)B1 from ba2 and (P)B2, respectively.
The outlooks on the long-term ratings of all four banks remain stable, Moody’s said.
Credit conditions in India have gradually improved, with banks' stock of legacy problem loans declining significantly over the last three years. Following a decade of deleveraging, corporate financial health has improved, as has stress among non-bank financial institutions, Moody's said.
Despite pandemic-induced economic stresses, retail loans have performed well in India, indicating better underwriting quality and relatively low household leverage in comparison to many other Asian countries. Loans to small and medium-sized businesses, however, continue to pose risks to banks' asset quality because Moody's expects this segment to be the most vulnerable to interest rate increases, according to the statement.
The four banks' BCA upgrades are a reflection of their increased asset quality and profitability. The gross nonperforming loan (NPL) ratios as of the end of September 2022 for SBI, BOB, Canara and PNB declined sharply to 3.5%, 5.3%, 6.4% and 10.5%, respectively, from 10.9%, 12.3%, 11.9% and 18.4% as of the end of March 2018. There has been a corresponding improvement in their net NPL formation rates as well.
In the upcoming 12 to 18 months, the rating agency expects the banks' asset quality to be strong owing to a favourable operating environment, strengthened corporate balance sheets, and higher-quality retail underwriting.
Due to lower borrowing costs, the improvement in asset quality has translated into higher profitability. Over the next 12 to 18 months, Moody's expects that this improvement in profitability will be able to last.
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.
Moody's could downgrade the BCAs of the four banks if their asset quality deteriorates materially, as reflected in net NPL formation rates being above 2% for a prolonged period, which in turn affects profitability and capital.