Ratings of public sector banks linked to govt support: S&P

Global ratings agency Standard & Poor's (S&P) expects the government to continue supporting the bad debt-saddled public sector banks and has warned it will sharply cut their ratings if the state support weakens.
"We continue to believe there is a very high likelihood that the government will support its banks, and that forms a pivotal point in our assessments of capital position and extraordinary support for them," S&P Analyst Deepali Seth Chhabria said in a note today.
She, however, warned if the state support weakened, the agency will cut ratings of these lenders.
"If the government support weakens, our issuer credit ratings on the public sector banks (PSBs) could deteriorate sharply, depending on our view on the role and link of these banks at that time, and will reflect the incipient weakness of the banks," Chhabria added.

She said most of the state-run lenders, barring SBI, Union Bank and Indian Bank, have reported "huge losses" in the last two reporting quarters due to the RBI's asset quality review (AQR).
"Over the longer run, the tighter central bank norms are likely to improve transparency in the Indian banking system."

The rating outfit said the AQR, under which banks have been given a list of 130 accounts to be classified as NPAs and will have to set aside Rs 70,000 crore in provisions according to some estimates, has "tested the government's willingness" to support the 26 PSBs.
The agency acknowledged that so far, the government has been supporting PSBs with capital and has also affirmed its commitment to support beyond budgeted limits as well.

According to a recent report, the asset quality issues have wiped off 16.4 per cent of the 22 listed state-run bank's networth and the stressed assets are higher than their networth for a third of them.
It can be noted that S&P had taken rating actions on a string of banks earlier this week.
It revised the rating outlook on Union Bank to negative from stable on asset quality fears, and lowered the issuer credit ratings on Syndicate Bank, Indian Overseas Bank, and Bank of India by one notch to reflect weakness in asset quality.