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Last Updated : Sep 01, 2015 02:42 PM IST | Source: CNBC-TV18

PNB weakest amongst state banks due to NPLs: Fitch

Saswata Guha, Director – Financial Institutions, Fitch Ratings (India) told CNBC-TV18 that despite injection of capital by the government, PNB‘s balance sheet has inadequate capital to meet uncertain risks.

Rating agency Fitch affirmed credit rating for nine Indian banks on Tuesday.

The long-term Issuer Default Ratings (IDR), that is used to measure bank’s credit risk ability, on eight banks – SBI, IDBI, Punjab National Bank (PNB), ICICI, Bank of Baroda (BoB), BoB (New Zealand), Axis Bank, Canara Bank has been affirmed at “BBB-”. Only, Indian Bank has been affirmed at “BB+”.

In an interview with CNBC-TV18, Saswata Guha, Director – Financial Institutions, Fitch Ratings (India) said that PNB is the weakest among the state banks because of its stressed assets situation.

The agency downgraded PNB’s Viability Rating (VR) to ‘BB’ reflecting the risk to bank’s capital position on back of expanding stressed assets. 

Despite injection of capital by the government, PNB’s balance sheet has inadequate capital to meet uncertain risks, he said adding that the rating agency does not expect any “meaningful improvement” even with additional capital.

PNB will take time to recover all its non-performing loans (NPLs), he said.

Fitch will also be following Canara Bank and IDBI closely for stressed asset management, Guha said.

Guha added that the outlook for Indian banks’ credit profile is more positive in FY16 than it was in FY15.

Below is the transcript of Saswata Guha’s interview with Nigel D’Souza & Reema Tendulkar on CNBC-TV18.

Nigel: We received a note earlier this morning and in fact the Fitch has affirmed the ratings on nine Indian Banks but outlook not looking too good on Punjab National Bank (PNB)?

A: That is right, we had our annual review of the Indian Banks and while we have affirmed the long-term default rating, which is a bond rating, the standalone ratings for banks are looking somewhat shaky at least for few.

Within that PNB, we see the risks are still prevailing and in light of the macro uncertainties, there have been some potential rise to those stressed assets.

The adjusted capitalisation in PNB’s case looks more weaker as compared to its peers. So, in light of these considerations the action on the viability rating (VR) was taken.

Reema: What exactly are the risks for PNB? You highlighted one aspect about capital requirements. Even if the government puts in money in PNB it is not going to be sufficient to overcome these risks?

A: PNB compared to other banks have generally acceptable level of loan loss coverage, but when you look at capital which is there to absorb the unexpected losses and you map that to the stresses assets of PNB, which in the large State banks space, is the largest stock.

Clearly, the capital does not look to be adequate and also in terms of the government equity injections that is expected to come in and when we account for that as well there is not much meaning full improvement in our adjusted capital ratios.

There is also another angle because of the so-called impact of the stressed assets and weak capitalisation. We also believe that the recovery process of a PNB to come out of this, there current stock and come to more acceptable average level will probably take longer than what we are anticipating for some of its similarly rated peers. The VR tends to reflect that weakness.

Reema: Right now the global situation is fairly tensed there seems to be incremental stress which could come through for the steel sector based on what is happening across the commodity complex. Do you believe the capital health of banks is a better in FY16 compared to FY15?

A: IF you look at absolute capital levels there will be no doubt that the absolute levels will look better thanks to the governments expected injection of about Rs 250 billion but when we look at capital it is important we look at capital in light of the balance sheet realities and in this case State Banks have been going through fair amount of stress and continue to account for a large dominant piece of that.

Therefore when we started adjusting capital levels to against that stress is when one starts getting a true picture in terms of how much capital there is really available to potentially absorb any negative surprises that would come through.

So, PNB obviously is the one which to us appear the weakest bet. Clearly there are also pressures on other banks like IDBI Bank and Canara Bank in our view and we will be sort of looking closely at those two banks as well.

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First Published on Sep 1, 2015 12:52 pm
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