The bank's rating has been cut to Ba2/Not Prime from Baa3/Prime-3.
The rating agency said it has put ratings of the lender under review for further downgrade.
"The rating actions reflect the significant deterioration in the bank's financial profile, driven by asset quality issues and the heightened risk to its solvency position," Moody's said in a note today.
Recently, two domestic rating agency India Ratings and Research and Icra had downgraded various debt instruments of the bank and also gave it negative outlook.
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Moody's further said the bank's capitalisation position is extremely weak with a common equity tier 1 (CET1) ratio of 5.64 per cent as of March 2017.
The CET1 ratio is just above the minimum regulatory requirement of 5.5 per cent but not sufficient to meet the CET1 plus capital conservation buffer requirement of 7.375 per cent through March 2018.
Over the next 12-18 months, the rating agency expects asset quality issues to persist, which will put pressure on the bank's profitability profile, and limit its ability to generate internal capital.
"The bank's buffers against further asset quality stress remain weak. Its capacity for internal capital generation will remain constrained by low net interest margins and high credit costs," the rating agency said.
Despite its weak solvency profile, the rating agency said the bank's funding and liquidity position have remained fairly stable.
It further said the review for downgrade will focus on the bank's asset quality and profitability performance, capital injection from the government, regulatory forbearance by the RBI for meeting obligations to creditors and assessment of government support to the bank.
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