Rating agency Icra Monday downgraded the long-term ratings of state-run Oriental Bank of Commerce's borrowing programme to A+ from AA-, with a negative outlook, on weak financial performances and high NPA level.
It has downgraded the long-term rating for the bank's Rs 3,000-crore Basel III compliant tier II bonds to A+ from AA- and Rs 1,200-crore Basel II compliant lower tier II bonds to A+ from AA-.
The rating on OBC's Rs 500-crore Basel II compliant upper tier II bonds has been downgraded to A- from A+.
"The rating downgrade factors in the bank's weak financial performance as reflected in the elevated level of fresh slippages, the high non-performing advances (NPA) level, significant losses and consequently weakened capital ratios," the agency said in a report.
Icra said the credit provisions are expected to remain significantly high in relation to the core operating profits given the expectation that the high level of slippages and elevated level of NPAs will continue for the bank in FY19.
"This is expected to result in high equity capital requirements during the year," it added.
The lender's ability to raise equity capital to maintain capital levels above the regulatory requirements, according to the agency, will remain a key rating sensitivity.
OBC's fresh slippages stood elevated at Rs 12,249 crore during FY18 and Rs 2,831 crore during the first quarter of FY19.
With slippages far exceeding the recoveries and upgrades, the gross NPA increased to Rs 26,141 crore (17.89 per cent of gross advances) as on June 30, 2018, compared with Rs 22,859 crore (13.73 per cent) as on March 31, 2017.
Despite a capital infusion of Rs 3,571 crore from the government in FY18, the bank's capital ratios weakened because of a huge loss before tax of Rs 6,095 crore and the early recall of its tier I bonds during FY18.
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