[ad_1]
Global rating agency Moody’s has upgraded the long-term local and foreign currency deposit ratings of Bank of Baroda (BOB), Canara Bank, and Punjab National Bank (PNB) from “Ba1” to “Baa3”, reflecting improving credit profile and macro economic conditions.
It also upgraded the Baseline Credit Assessment (BCA) of the State Bank of India and three public sector banks – BOB, Canara Bank and PNB.
The upgrading of ratings and BCA reflect an improvement in India’s macro profile to “Moderate+” from “Moderate” and the improving credit metrics of the four banks, Moody’s said in a statement on Friday.
The outlooks on long-term ratings of all four banks remain stable. The rating agency continues to work on the assumption of a very high level of government support to the banks in times of need.
Credit conditions in India have gradually improved, with a significant reduction in the banks’ stock of legacy problem loans over the past three years. Corporates’ financial health has also improved following a decade of deleveraging, while stress among non-bank financial institutions has abated, it added.
In addition, retail loans have performed well despite pandemic-induced economic stresses, indicating better underwriting quality and relatively low household leverage in India compared to those in many other Asian countries.
The rating agency flagged risks from rising interest rates and moderation in pace of country’s economic growth. Loans to small and medium-size enterprises continue to pose risks to the banks’ asset quality as this segment is most vulnerable to interest rate rises.
Furthermore, while India’s economic growth will moderate driven by rising rates and a global slowdown, the economy will perform better than emerging market peers.
The BCA upgrades of the four banks reflect their improved asset quality and profitability. The gross non-performing loan ratios as of the end of September 2022 for SBI, BOB, Canara and PNB declined sharply from lelevls in March 2018. There has been a corresponding improvement in their net NPL formation rates as well.
Moody’s expects the banks’ asset quality to be healthy over the next 12-18 months, helped by a supportive operating environment, improved corporate balance sheets, and better retail underwriting quality.
The improvement in asset quality has translated into higher profitability because of lower credit costs. This increase in profitability is expected to be sustainable over the next 12-18 months, rating agency added.
[ad_2]
Source link