Ratings agency CRISIL
has downgraded the rating on Union Bank
of India and Corporation Bank’s tier I and II bonds.
The asset quality and income profile and profitability of public sector lenders are expected to remain under pressure.
Union Bank’s tier I and II bonds
have been downgraded from “AAA” to “AA+” and the rating for Corporation Bank’s capital instruments have been revised from “AA “to “AA- “.
The rating, nevertheless, continues to factor in the support lenders are likely to receive from their majority owner Government of India.
Mumbai-based lender Union Bank
is facing continued stress in the corporate loan portfolio. The recovery from gross non-performing assets (NPAs) is low given the weak credit quality of corporate borrowers.
Union Bank’s gross NPA ratio was high at 12.6% as on June 30, 2017 (11.2% as on March 31, 2017). Also, profitability is modest with the bank reporting a return on assets (RoA) of 0.1% (annualized) for the quarter ended June 30, 2017 (~0.1 % for fiscal 2017).
Furthermore, with provisioning expenses – amounts to be set aside bad loans -- remaining elevated, earnings profile of Union Bank
is expected to be under pressure in near term.
said Corporation Bank's asset quality stress will stay elevated over the next few quarters with continued slippages, especially in the corporate book and limited recovery of NPAs.
With relatively low provisioning cover of 28% (excluding technical write-offs) as on June 30, 2017, the Corporation bank’s profitability is also expected to remain under pressure over the medium term, CRISIL