Moody’s downgrades four public sector banks, outlook negative

Mumbai, September 4

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Moody’s Investors Service on Friday downgraded the long-term local and foreign currency deposit ratings of Bank of Baroda, Bank of India, Canara Bank and Union Bank of India to Ba1 from Baa3. The ratings agency also downgraded Baseline Credit Assessments (BCAs) of all the four lenders to B1 from Ba3. The outlook on the ratings of the four banks is negative.

Deepening economic slowdown exacerbated by the coronavirus outbreak will strain the standalone credit strength of the banks, the agency said. Prolonged financial stress among households, weak job creation and a credit crunch among non-bank financial companies will lead to a rise in non-performing loans, delaying the ongoing clean-up of banks’ balance sheets, it said.

On Bank of Baroda (BoB), Bank of India (BoI), Canara Bank and Union Bank, it said, “The BCA downgrades take into consideration rising risks to the banks’ asset quality as a result of the severe economic contraction, which will result in an increase in credit costs.” This increase in credit costs will hurt profitability and also strain the banks’ modest capitalisation, reversing recent improvements, it said.

The agency, however, said funding and liquidity continue to be key credit strengths given their status as public sector banks, which results in good deposit franchises.

The banks’ Ba1 long-term local and foreign currency deposit ratings incorporate three-notches of uplift from their B1 BCAs to reflect Moody’s assumption of a very high probability of support from the government in times of need. Moody’s said the negative outlook factors in further downside risks to the banks’ financial profiles because of the country’s uncertain operating environment. — PTI