Fitch lowers IndusInd, Uco Bank ratings

Global rating agency Fitch downgraded the ratings for some financial instruments of IndusInd bank and Uco bank on Thursday. The agency has downgraded the ratings of IndusInd’s upper tier-II bonds to ‘BBB+(ind)’ from ‘A-(minus)(ind)’.

Fitch said that some of IndusInd Bank’s key financial parameters have started to improve, but the bank’s performance remains more vulnerable to interest rate volatility than other Indian banks.

FRESH TAKE

The agency has downgraded the ratings of IndusInd’s upper tier-II bonds to ‘BBB+(ind)’ from ‘A-(minus)(ind)’

The agency downgraded Uco Bank’s national long-term rating to ‘AA-(ind)’ from ‘AA(ind)’ with a negative outlook

At the same time, it downgraded subordinated debt to ‘AA-(ind)’ from ‘AA(ind)’, upper tier-II bonds to ‘A(ind)’ from ‘AA-(ind)’ , perpetual tier I bonds to ‘A(ind)’ from ‘AA- (ind)’ and Individual rating downgraded to ‘D/E’ from ‘D’

 

 

 

 

 

 

 

IndusInd’s yield on advances may improve further in 2009. However, the increase in personnel expenses is likely to partially offset the impact of increasing NIM.

The management’s strategic initiatives to correct IndusInd’s asset-liability profile may take more than 12 months to deliver a sustained improvement in financials, given the increasingly adverse operating environment,” the rating agency said.

However, the bank’s national long-term and individual ratings have been affirmed on account of the initiatives taken by its new management to mitigate the structural mismatch in its asset-liability.

The agency downgraded Uco Bank’s national long-term rating to ‘AA-(ind)’ from ‘AA(ind)’ with a negative outlook.

At the same time, it downgraded subordinated debt to ‘AA-(ind)’ from ‘AA(ind)’, upper tier-II bonds to ‘A(ind)’ from ‘AA-(ind)’ , perpetual tier I bonds to ‘A(ind)’ from ‘AA- (ind)’ and Individual rating downgraded to ‘D/E’ from ‘D’. Fitch attributed these downgrades to bank’s increased vulnerability given the present market situation.

Fitch said the negative outlook in the national and individual ratings is due to the low asset quality of Indian banks, which is likely to come under pressure in the next two years.

The agency said the downgrade in the national long-term ratings reflects expectations of government support given UCO bank’s majority government ownership and its moderately large size. “In the current difficult market conditions, the bank is now highly dependent on the government for capital infusion”, Fitch said.