Icra downgrades long-term rating for Syndicate Bank's Basel-III bonds

Icra has downgraded the long-term rating for public sector lender Syndicate Bank’s Basel-III compliant Tier II bonds from “AA+” to “AA”. The outlook on the rating is negative.

The rating downgrade factors in the bank’s weak financial performance as reflected in the elevated level of fresh slippages, increasing non-performing advances (NPA) level, high losses and consequently weakened capital ratios, Icra said in a statement.

The bank posted a net loss of Rs 12.82 billion in quarter ended June 2018 (Q1FY19) as against Rs 2.63 billion in April-June 2018 (Q1FY18). 

Given the expectation that the high level of slippages will continue in FY19, the credit provisions are expected to remain significantly elevated. 

This is expected to result in high-equity capital requirements during the year. 

Ability to raise equity capital and restore core equity (CET-I) levels above the regulatory requirements will remain a key rating sensitivity, ICRA said. 
 

The bank’s fresh slippages stood at Rs 143.11 billion during FY2018 and Rs 39.45 billion during Q1 FY2019. 

With slippages far exceeding the recoveries and upgrades, the gross NPA increased to Rs 263.62 billion (12.60% of gross advances) as on June 30, 2018, compared to Rs 176.09 billion (8.51%) as on March 31, 2017.