CRISIL warns of more rating downgrades for PSBs

Credit, income profiles to deteriorate further

More rating downgrades are in store for Public Sector Banks (PSBs) as many of them reported net loss in the third quarter on sharp rise in provisions for bad loans, according to rating agency CRISIL.

Issuing "Credit Alert" on PSBs, CRISIL said Intensifying asset quality problems at PSBs have the potential to impair their credit risk profiles.

Their earning profile would also deteriorate further due to higher provisioning and will need more capital than budgeted in Indradhanush program.

PSBs require significantly higher capitalisation either through government infusion or relaxation of regulatory capital norms, it said in statement today.

A Credit Alert is opinion on a sharp and specific development. It conveys that agency will revert shortly on the impact of the development on the ratings of those affected.

Over the past 18 months, it has either downgraded or revised its outlook to 'Negative' on nine out of the 25 PSBs that it rates on the back of expectations of worsening asset quality.

As much as 85 per cent of banking system weak assets are in the books of PSBs. Increasing stress is also visible in the quantum of strategic debt restructuring and 5/25 structuring being carried out by banks, agency said.

In May 2015, CRISIL had estimated weak assets in banks to rise to a high of around Rs.5,30,000 crore or 6.3% of total advances by March 2016.

However, the deterioration in asset quality in the first nine months of FY16 has been faster than expected. Amongst key factors driving deterioration are tumbling global commodity prices, inability of the leveraged players to sell assets, and identification of stressed assets under Reserve Bank of India's asset quality review.

The provisioning requirement of PSBs are expected to increase further, rendering their pre-provisioning profits inadequate.

"We will be looking out for government announcements for such measures, including in the upcoming Union Budget. If that doesn't happen, CRISIL's threshold of 'high safety category' for PSBs could get lowered", it said.

CRISIL is undertaking a detailed analysis of the impact on credit risk profile of banks it rates. The exercise will factor in the deterioration in standalone credit profile and also any developments on the capital front for PSBs in our rating or outlook changes to be announced subsequently.