CARE Ratings upgrades Punjab & Sind Bank tier-II bonds on asset gains

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State-owned Punjab & Sind Bank has said CARE Ratings has upgraded ratings on tier-II bonds by a notch, citing improvement in profitability and decline in bad loans.

The rating has been upgraded from CARE AA- with Positive outlook to CARE AA with Stable outlook, the bank has said in a regulatory filing.

The bank has secured rating upgrades for tier II bonds worth Rs 1,237 crore.

The rating revision to the debt instruments of Punjab and Sind Bank (PSB) considers the improvement in profitability in FY25 and better asset quality aided by recoveries and lower incremental slippages, CARE Ratings said in a statement.

The rating continues to favourably factor in majority ownership of and demonstrated support from Government of India (GoI), comfortable capitalisation levels supported by multiple equity infusions and accretion of profits, and established presence in northern states of India, it said.

PSB is expected to sustain growth in business while maintaining adequate capitalisation and improving asset quality, it said.

The rating continues to be constrained by moderate, albeit improving, profitability with high interest expenses and operating costs and large share of non-earning assets in the form of zero-coupon recapitalisation bonds, it said.

Going forward, it said the bank is expected to have some pressure on margins due as advances are repriced quickly and deposits will be repriced with a lag.

The rating also factors in PSB's relatively lower proportion of low-cost current account savings account (CASA) deposit ratio and relatively higher geographical concentration in north India states with major presence in New Delhi and Punjab.

CARE Ratings noted that despite improvement in potential weak assets (SMA 1 and 2) in FY25, net stressed assets of PSB remain high in relation to its net worth compared to peer public sector banks, it added.