Credit rating agency Crisil has downgraded eight PSBs including Bank of India and Canara Bank, following deterioration in their asset quality and also revised the outlook on five of them to negative.
The agency also placed the rating on Syndicate Bank on negative watch list.
The state-run banks whose ratings have been downgraded are Bank of India, Central Bank of India, Corporation Bank, Dena Bank, IDBI Bank, Indian Overseas Bank, Syndicate Bank and Uco Bank. Those whose outlooks have revised down are Andhra Bank, BoB, Canara Bank, PNB and Punjab and Sind Bank, Crisil said in a report.
Significant stress in the corporate loan book of public sector banks (PSBs) is expected to result in their weak assets ballooning to Rs 7.1 trillion by March 2017 (11.3 per cent of total loan book) from around Rs 4 trillion as of March 2015 (7.2 per cent of loan book).
Steep rise in NPAs, expected further surge in stressed assets and the consequent hit on profitability and capital will dent credit profiles, Crisil said.
The agency, however, said the ratings on 10 other Crisil-rated state-run banks have been reaffirmed wherein four of them carry a "negative" outlook.
"Our rating actions are driven by expectation that their asset quality problems 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," Crisil said.
The report expects NPAs to remain high driven by stretched cash flows of highly leveraged corporates (mainly in 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.
Another reason for the downgrades is the earnings profile of most PSU banks which has deteriorated with many expected to report a full-year net loss this fiscal.
The report said the bottomline will be hit further with banks being told to migrate to the marginal cost of funds-based lending regime from April, coupled with the proportion of zero income-generating bad assets in the loan book rising, which will crimp the net interest margin 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," the report added.
