Punjab National Bank stock rose over 2% on Tuesday to Rs 40.75 after Fitch Ratings affirmed the bank's long‐term issuer default rating (IDR) at 'BBB‐'.
"The outlook is 'negative'. This reflects the outlook on India's sovereign rating (BBB‐/negative)," the credit ratings agency said in a statement.
Fitch has assigned PNB a Government Support Rating (GSR) of 'bbb-'.
Fitch Ratings said that the operating environment (OE) outlook of Indian banks has been revised to stable from negative, reflecting a better recovery than we expected in business and economic activity following the Covid-19 pandemic second wave.
"Economic momentum and regulatory measures should support modest improvements in Indian banks' financial profiles over the next 12-24 months, even though challenges remain. PNB's long‐term IDR is driven by its GSR of 'bbb‐', which is same as India's sovereign rating. It reflects Fitch's expectation of a high probability of extraordinary government support for PNB, if required, because of the bank's high systemic importance," said Fitch.
It stems from PNB's position as the second-largest state‐owned bank, its pan‐India franchise and majority state ownership at 73.2% as of September 2021.
Large state-owned banks such as PNB also play an important role in furthering the state's objectives of social-lending and financial inclusion, which further underscores their importance, the ratings agency said.
Fitch believes a failure or default by a large state‐owned bank such as PNB could lead to loss of confidence in the banking sector and significant reputational risk for the state.
The negative outlook on the long-term IDR mirrors the outlook on India's sovereign rating (BBB-/Negative).
The Government of India owned 73.1% of PNB as on September 30, 2021.
The bank reported 78% rise in standalone net profit to Rs 1,105.15 crore in Q2FY22 from Rs 620.81 crore in Q2FY21. Total income during the quarter declined by 8.7% YoY to Rs 21,262.32 crore.