CRISIL downgrades ratings of 8 PSBs

Predicts weak loans will grow to Rs 7.1 trillion in a year

Effecting major rating action on the bonds of public sector banks, rating agency CRISIL said on Thursday that these lenders would continue to reel under asset quality problems in 2016-17.

It downgraded ratings on the debt instruments of eight PSBs, including Bank of India and IDBI Bank. It revised its outlook on five others to ‘negative’, from ‘stable’. This was in addition to another rating downgrade and an outlook revision to ‘negative’ on two PSBs over the past month.

The rating actions are driven by the expectation that the asset quality problems of PSBs will remain acute and continue through most of 2016-17, CRISIL said. The resulting impact on profitability and capitalisation can further dent credit profiles over the medium term.

Ratings on PSBs continue to factor in support from its majority shareholder, the Government of India, it added.

On February 10, CRISIL had issued a ‘credit alert’, saying it was assessing the impact of the deterioration in asset quality and profitability on banks’ credit profiles.

Significant stress in the corporate loan book of PSBs is expected to result in their weak assets ballooning to Rs 7.1 lakh crore by March 31, 2017 (11.3 per cent of he total loan book) from around Rs 4 lakh crore as on March 31, 2015 (7.2 per cent of the loan book).

Over the next few quarters, slippages to non-performing assets (NPAs) are expected to remain high. This would be driven by stretched cash flows of highly leveraged corporates and continued pro-active recognition of stressed assets by banks.

  PSBs have limited ability in the current environment to recover from exposures to large companies that have slipped into NPAs. Further, the earnings profile of most PSBs has deteriorated, with many expected to report a full-year net loss this financial year.