Global rating agency Moody's on Wednesday upgraded the outlook on Punjab National Bank (PNB), which will merge OBC and United Bank of India with itself, to 'positive' from 'stable'.
It also affirmed the local and foreign currency deposit ratings of Canara Bank, OBC, Syndicate Bank and Union Bank at Baa3/P-3.
In a release, Moody's Investors Service also said it has affirmed the local and foreign currency deposit ratings of PNB at Ba1/NP, and affirmed the bank's baseline credit assessments (BCAs).
"The outlooks on Canara Bank, OBC, Syndicate Bank and Union Bank are maintained at stable.
"Moody's has changed the outlook on PNB to positive from stable," it said.
The affirmation of PNB's ratings with a positive outlook reflects Moody's view that the bank's BCA will likely improve after the capital infusion from the government, and that its financial metrics will gradually improve, it said.
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After the merger, PNB will become the second-largest public sector bank (PSB) in India with a deposit market share of 8 per cent, compared to its standalone market share of 5.2 per cent as of March 2019.
Moody's, however, added that it could lower PNB's BCA and ratings or change the rating outlook to stable if its asset quality, profitability and capital deteriorate on a standalone basis or as a result of the merger.
Moody's could also change PNB's outlook to stable if its post-merger capitalisation does not improve relative to its standalone capital position, the release said.
Last month, Finance Minister Nirmala Sitharaman had announced that 10 public sector banks would be merged into four.
With mergers and consolidation of PSBs, the government aims to create few global-sized banks as well as use their synergies to enhance credit flow.