Indian Bank gains after CRISIL revises ratings outlook to 'stable'

Indian Bank rose 1.76% to Rs 141.90 after CRISIL Ratings revised its outlook on the long-term debt instruments of the bank to 'stable' from 'negative', while reaffirming the ratings on the same at 'CRISIL AAA/CRISIL AA'.

In August 2020, the ratings agency had assigned a 'negative' outlook to the long-term debt instruments of Indian Bank to reflect the potential stress that the bank's asset quality and, consequently, profitability could witness on account of the challenging macro environment.

CRISIL said that the revision in the outlook to 'stable' factors in the better-than-expected performance of the bank during the current macro environment. The reported gross non-performing assets (NPAs) stood at 9.0% as on 31 December 2020. Excluding the benefit of Supreme Court stay on NPA recognition, the pro-forma gross NPAs stood at 10.4% compared with 11.4% as on 31 March 2020. While gross NPAs are expected to increase from current levels, they should remain lower than what earlier envisaged.

Furthermore, profitability of the bank has also witnessed an improvement, with the bank reporting profit after tax (PAT) of Rs 1,295 crore for the nine months ended 31 December 2020, with annualised return on assets (RoA) of 0.3%. This is against substantial loss of Rs 4,643 crore in fiscal 2020.

The overall ratings continue to factor in expectation of strong support Indian Bank is likely to receive from its majority owner, Government of India (GoI), and the sizeable scale of operations. It also factors in a healthy resource profile, with a high proportion of current and savings account (CASA) deposits and adequate capitalisation.

While economic activity has started picking up, any sudden surge in COVID-19 cases leading to partial lockdowns could negatively impact the collections. Hence, asset quality of the bank and the consequent impact on the earnings profile will continue to be closely monitored, the credit ratings agency said.

Indian Bank is a public sector bank. The Government of India held 88.06% stake in the bank as on 31 December 2020.

The bank reported 108.1% rise in net profit to Rs 514.29 crore on a 75.6% increase in total income to Rs 11,421.34 crore in Q3 FY21 over Q3 FY20.

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