Moody's ups outlook on IOB and Central Bank to positive from stable

Expects moderate improvement in profitability and asset quality stabilisation

Global ratings agency Moody's has revised the outlook on two Indian public sector lenders, the Indian Overseas Bank (IOB) and Central Bank of India (CBI), from "stable" to "positive". 

The positive outlook reflects the upward pressure that could develop on the banks' long-term ratings if capital positions continue to improve over the next 12-18 months due to capital infusions from the government, Moody's said in statement on Friday.

The agency expects a stabilisation in asset quality, a moderate improvement in profitability metrics, and stable funding and liquidity positions at these two banks.

Moody's also affirmed the long-term local and foreign currency bank deposit ratings of CBI and IOB at Ba3.

According to the recapitalisation plan announced in October 2017, the government has committed to infuse Rs 1.53 trillion into public-sector banks by March 2019. It will inject Rs 800 billion into 20 of such banks by March 2018 in the form of recapitalisation bonds. In addition, it will infuse another Rs 100 billion from budgetary sources by March 2018.

Based on the announced allocations, CBI will receive Rs 51.6 billion and IOB will receive Rs 46.9 billion in new capital. The capital infusion will increase the common equity tier 1 (CET1 ratio) for CBI by 280 basis points (bps), compared to seven per cent as of September 2017, and for IOB by 320 bps, compared to the reported ratio of 7.1 per cent, Moody's said.