Moneycontrol Bureau
Shares of Bank of India and Canara Bank jumped 1-2 percent intraday on Tuesday. Moody’s has downgraded Bank of India and Canara Bank to Baa3 from Ba2 rating. Bad loan is cause of concern for both the banks.
According to the rating agency, Bank of India may continue to see stress in its corporate loan portfolio. The bank had seen a significant spike in non-performing loan (NPL) formation in the quarter ending March 2015. It has weak buffers to withstand incremental asset quality stress, with a core Tier 1 ratio of only 7.2 percent at end March 2015.
"The deposit rating of the bank has been affirmed at Baa3, in line with the sovereign rating, by factoring in three notches of systemic support. We expect Bank of India to enjoy a very high level of systemic support, given that it is mandated by law that the bank be majority owned by the government," Moody's says in a report.
Meanwhile, the rating agency sees Canara Bank continuing to see stress in its corporate loan portfolio. It has weak buffers to withstand incremental asset quality stress, with a core Tier 1 ratio of only 7.2 percent at end March 2015. The bank had reported a further deterioration in its impaired loan ratio for the year ending march 2015, with its impaired loan ratio increasing to 10.5 percent from 9.15 percent year-on-year.
However, Moody's believes that "BOI and Canara Bank's baseline credit assessment (BCA) could be upgraded if there are substantial improvements in the bank's asset quality metrics. There could be upward pressure on its BCA if the banks are able to demonstrate access to equity capital markets as well. Their senior unsecured debt and deposit ratings could be upgraded if the India sovereign rating (Baa3, Positive) is upgraded," it explains in a note.
BCA is Moody's new bank rating methodology which helps to more accurately predict bank failures.
At 09:35 hrs Bank Of India was at Rs 170.15, down Rs 1.90, or 1.10 percent and Canara Bank was at Rs 281.65, down Rs 2.45, or 0.86 percent on the BSE.
Posted by Nasrin Sultana
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