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Moody’s upgrades outlook on Central Bank, IOB to positive from stable
It affirmed the long-term local and foreign currency bank deposit ratings of both the lenders at Ba3.
Global rating agency Moody’s on Friday upgraded its outlook on the state-run lenders Central Bank of India and the Indian Overseas Bank (IOB) to positive from stable on the back of capital infusion from the government.
It affirmed the long-term local and foreign currency bank deposit ratings of both the lenders at Ba3.
The agency also affirmed the banks’ baseline credit assessments (BCAs) at b3 and their counter-party risk assessments (CRA) at Ba2(cr)/NP(cr).
Under the government’s recapitalisation plan, the Central Bank of India will receive ₹ 5,160 crore, while IOB will get ₹4,690 crore in new capital.
“The positive outlook reflects the upward pressure that could develop on these banks’ long-term ratings, if their credit fundamentals — namely capital positions — continue to improve over the next 12-18 months due to capital infusions from the government,” Moody’s has said in a report.
The outlook also reflects the agency’s view on the expected evolution of their balance sheets, including a stabilisation in asset quality.
The government in October 2017 had committed to infuse ₹ 1.53 lakh crore into the public-sector banks (PSBs) by March 2019.
It will pump in ₹ 80,000 crore into 20 PSBs by March 2018 in the form of recapitalisation bonds, while ₹ 10,000 crore will be infused from budgetary sources by March 2018.
The government will infuse another ₹ 65,000 crore in new capital in fiscal 2018-19.
The government has made it explicit that all PSU banks will meet their minimum regulatory capital requirements after factoring in the provisioning requirements for non-performing loans (NPLs) as well as requirements resulting from the transition to IFRS 9 accounting standards in April 2018.
“We continue to assume a very high probability of government support for CBI and IOB, resulting in a three-notch uplift to their deposit ratings from their BCAs,” the rating agency said.
The rating agency, however, said downward pressure on the banks’ ratings may emerge if further credit losses worsen its capital position and if the government support diminishes.
