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IOB,IDBI,BoI& UBI may be first in line of RBI fire under new

Press Trust of India  |  Mumbai 

Weak state-run banks like Indian Overseas Bank, IDBI Bank, of and of are in for regulatory action if the tightened prompt corrective action (PCA) is implemented properly, warns S&P in a report.

"If the norms were applied to reported numbers for December 2016, among the banks rated by us, is in risk threshold 3; is in risk threshold 2; and of and of are likely be in risk threshold 1;" S&P credit analyst Geeta Chugh said today.


She also said the revised PCA, released last week by the Reserve invests a lot of powers on the regulator to supersede the troubled banks, may trigger faster consolidation among the bad loan saddled state-run banks or higher capital infusion by the

"Our ratings on the banks factor in weak stand-alone credit profiles of 'B-' on IOB and IDBI Bank, and 'BB' on of and Union The 'BB' issuer credit ratings on IOB and and 'BB+' issuer credit ratings on BoI and UBI continue to benefit from the very high likelihood of support," Chugh said.

Welcoming the new guidelines, she said "we believe the Reserve is taking a step in the right direction and the new regulations will force public sector banks to raise their generally low provisioning coverage, and likely accelerate the need for capital."

The revised norms may not necessarily be effective as early warning signals amid the current industry downcycle, she said and noted that a number of public sector banks are already knee-deep in NPAs and firmly entrenched within the new risk thresholds.

She further noted that the PCA measures such as restrictions on dividend distributions or branch expansion will have limited benefit because most banks didn't pay any dividends in fiscal 2016 as they are conserving capital. Also, most of them have shown little growth, and in many cases have contracted their balance sheets.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, April 18 2017. 19:22 IST
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