 "ICRA downgrades outlook on Syndicate Bank's tier II bonds")
Rating agency ICRA has downgraded the outlook on Syndicate Bank's tier II bonds from "Stable" to "Negative" on more than expected weakening of asset quality and profitability.
However, ICRA, affirmed the rating "AA+" for Basel -III compliant tier II bonds.
The gross Non-performing Assets (NPAs) of Manipal-based public sector lender increased from 3.7 per cent in September 2015 to 6.7 per cent in March 2016 (3.1% in March 2015).
For FY16, the bank reported net loss of Rs 1,643 crore (net profit of Rs. 1,523 crore in FY2015). The bank's total networth (excluding the revaluation reserves) stood at about Rs. 11,466 crore.
Some additional larger vulnerable exposures (about 2-3 per cent of the advances) of the bank, could exert pressure on the asset quality indicators in the near to medium term.
The weak demand outlook and other structural challenges is likely to keep the fresh NPA generation rate at higher levels and make recoveries more challenging over the next 6-12 months.
More From This Section
Syndicate Bank's ability to control incremental slippages and make effective recoveries in the current environment would be crucial from a rating perspective.
The bank's NPA provision cover was moderate at about 35 per cent, resulting in net NPA of 4.5 per cent (1.9% as of March 2015).
The deterioration in the asset quality and the losses (fully provided for in Q4FY2016) on account of fraud in three branches in the Jaipur region impacted the overall earnings profile of Syndbank.
In FY2016, the bank reported sizeable losses with return on average assets (ROAA) being at -0.5% (0.6% in FY2015). The return on equity (ROE) was negative (-13.5 per cent) for Fy 16 as against 12.5 per cent in FY2015.
In the next 6-12 months, the bank's profitability is expected to remain under pressure as slippage rate is anticipated to remain high and as its provision coverage is moderate presently, ICRA added.
The ratings continue to factor in the majority ownership by Government of India (65.2% as of March 2016) ensuring sovereign support and the bank's established franchise network especially in South India.