Moody's downgrades OBC's baseline credit assessment

Moody's stated that OBC's impaired loan ratio rose to 18.7% of gross loans at end-March 2015 from 14.8% a year ago

Global rating agency Moody’s has downgraded Oriental Bank of Commerce (OBC)’s baseline credit assessment on deterioration in asset quality in FY15. The adjusted baseline credit assessment of the public sector lender stands at ‘ba3’ against the previous assessment of ‘ba2’.

However, Moody’s has affirmed the bank’s local currency and foreign currency bank deposit ratings at Baa3/P-3. The outlook on ratings continues to be positive.

Moody’s said in a statement that OBC’s impaired loan ratio rose to 18.7 per cent of gross loans at end-March 2015 from 14.8 per cent a year ago. OBC had total assets of Rs 2.31 lakh crore at end-March 2015.

Its capital adequacy — core Tier-1 ratio of 8.09 at end-March 2015 — is relatively healthier than other public sector banks. However, its impaired loans as a proportion of equity and loan loss reserves are the highest among rated Indian banks. Baseline credit assessments are opinions on the financial strength of issuers such as banks, sub-sovereigns, and government-related corporate issuers.

OBC’s baseline credit assessment is supported by its stable funding base and relatively high core profitability. The deposit rating of the bank has been affirmed at Baa3, in line with the sovereign rating.

“We expect OBC to enjoy a very high level of systemic support, given that it is mandated by law that the bank be majority owned by the government,” said Moody’s.

Furthermore, Moody’s has assigned a counterparty risk assessment (CR assessment) of Baa3(cr)/P-3(cr) on OBC.

CR assessment is an opinion on the counterparty risk related to a bank’s covered bonds, contractual performance obligations (servicing), derivatives, letters of credit, guarantees and liquidity facilities.