Singapore, September 04, 2019 -- Moody's Investors Service has taken rating actions on five Indian
public sector banks: (1) Canara Bank, (2) Oriental Bank of
Commerce (OBC), (3) Punjab National Bank (PNB), (4) Syndicate
Bank and (5) Union Bank of India (Union Bank), that will undergo
mergers as announced by the Indian government (Baa2 stable) on 30 August
2019.
Specifically, Moody's has affirmed the local and foreign currency
deposit ratings of Canara Bank, OBC, Syndicate Bank and Union
Bank at Baa3/P-3. Moody's has also affirmed their
Baseline Credit Assessments (BCAs) and Adjusted BCAs at ba3.
Moody's has also affirmed the local and foreign currency deposit
ratings of PNB at Ba1/NP, and affirmed the bank's BCA and
Adjusted BCA at b1.
The outlooks on Canara Bank, OBC, Syndicate Bank and Union
Bank are maintained at stable.
Moody's has changed the outlook on PNB to positive from stable.
For a detailed list of the ratings affected, please refer to the
end of this Press Release.
RATINGS RATIONALE
ANNOUNCED BANK MERGER AND CAPITAL INFUSIONS ARE KEY DRIVERS OF RATING
ACTIONS
On 30 August 2019, the Indian government announced four sets of
mergers between 10 public sector banks. The government also announced
a total of INR383 billion in capital infusions for the affected banks.
The government has announced four mergers: OBC and United Bank of
India with PNB, Syndicate Bank with Canara Bank, and Corporation
Bank and Andhra Bank with Union Bank. The fourth merger is between
two unrated banks, Indian Bank and Allahabad Bank. Moody's
expects the mergers will be completed by 1 April 2020.
The Indian government will infuse capital into the banks as follows:
INR160 billion into PNB, INR117 billion into Union Bank, INR65
billion into Canara Bank, INR16 billion into United Bank and INR25
billion into Indian Bank. The Indian government plans to complete
the capital increases over the next few months.
In addition, the Indian government announced a number of measures
to improve the operations, risk management and board oversight of
the banks, including greater autonomy for bank boards and flexibility
to the bank boards in recruiting senior management.
The ratings affirmations reflect Moody's expectation that the acquiring
banks will receive sufficient capital injections to absorb potential write-downs,
if any, arising from the merger. Post-merger,
Moody's expects that the banks will be able to maintain a common
equity tier 1 (CET1) ratio above the Basel III requirement of 8%,
which include the minimum CET1 ratio of 5.5% and a capital
conservation buffer of 2.5%.
As a result, Moody's expects the financial profiles of Canara
Bank and Union Bank will fundamentally remain unchanged following the
merger, and that the financial profile of PNB will strengthen,
when compared to their financial profiles on a standalone pre-merger
basis.
The affirmation also takes into account the banks' enlarged market
shares that will benefit their deposit franchises and help improve their
funding.
Moody's has also taken into account the measures announced by the
government to improve the banks' operations, oversight and
risk management, and that have the potential to structurally improve
their credit profiles over time. However, the measures also
give rise to some execution challenges, and Moody's has not
yet reflected the potential positive impact in the banks' ratings.
AFFIRMATION OF PNB'S RATINGS WITH A POSITIVE OUTLOOK
The affirmation of PNB's ratings with a positive outlook reflects
Moody's view that the bank's BCA will likely improve after
the capital infusion from the government, and that its financial
metrics will gradually improve. Post-merger, PNB will
become the second largest public sector bank in India with a deposit market
share of 8.0%, compared to its standalone market share
of 5.2% as of March 2019.
Taking into account the reported financials of PNB, OBC and United
Bank, Moody's expects the merged entity's consolidated
CET1 ratio will exceed 10%, compared to a standalone ratio
of 6.3% as of June 2019. The CET1 ratio calculation
takes into account the INR176 billion capital infusions into PNB Bank
and United Bank.
Moody's expects the bank's asset quality and profitability
will remain broadly unchanged following the merger. However,
the bank's enlarged market share will benefit its deposit franchise
and help improve its funding.
AFFIRMATION OF CANARA BANK, OBC, SYNDICATE BANK AND UNION
BANK'S RATINGS WITH A STABLE OUTLOOK
The affirmation of Canara Bank and Union Bank's ratings with stable
outlooks reflects Moody's view that post-merger, the banks'
credit profiles will remain stable over the next 12-18 months,
supported by moderately improving asset quality and profitability.
Post-merger, Canara Bank and Union Bank will become the fourth
and fifth largest public sector banks in India with deposit market shares
of 6.6% and 6.3%, compared to standalone
deposit market share of 4.6% and 3.2% as of
March 2019.
Taking into account capital infusions and the financials of the banks
to be merged, the CET1 ratios of Canara and Union will increase
to 9.6% and 10.8%, respectively,
from 8.2% and 7.9% as of 30 June 2019.
The CET1 ratios of OBC and Syndicate Bank were 10.8% and
8.9% as of 30 June 2019.
Moody's expects Canara Bank and Union Bank's asset quality
and profitability will remain broadly unchanged following the merger.
However, the banks' enlarged market shares will benefit their
deposit franchises and help improve their funding.
The affirmation of OBC and Syndicate Bank's ratings reflects Moody's
expectation that their standalone credit profiles will remain stable in
the period leading up to the merger.
VERY HIGH LEVEL OF GOVERNMENT SUPPORT
The affirmation of the banks' ratings also reflects Moody's
assessment of a very high level of government support for PNB, Canara
Bank, OBC, Syndicate Bank and Union Bank, reflecting
the government's majority stake in these banks as well as the systemic
importance of the public sector banks to the Indian financial system and
economy.
Such assessment of government support leads to three-notch uplifts
to the deposit ratings from the Adjusted BCAs of PNB, Canara Bank,
OBC, Syndicate Bank and Union Bank.
FACTORS THAT COULD LEAD TO AN UPGRADE
In the case of PNB, given the positive outlook, Moody's
could upgrade the bank's ratings and BCA if its credit metrics --
including capital and profitability -- improve following its acquisition
of OBC and United Bank.
In the case of Canara Bank, OBC, Syndicate Bank and Union
Bank, given the stable outlook, the banks' ratings are
unlikely to be upgraded over the next 12-18 months. However,
the outlook could be revised to positive if there are signs of a sustained
improvement in the banks' solvency ratios.
FACTORS THAT COULD LEAD TO A DOWNGRADE
In the case of PNB, Moody's could lower the bank's BCA
and ratings or change the rating outlook to stable if its asset quality,
profitability and capital deteriorate on a standalone basis or as a result
of the merger. Moody's could also change PNB's outlook
to stable if its post-merger capitalization does not improve relative
to its standalone capital position.
In the case of Canara Bank, OBC, Syndicate Bank and Union
Bank, Moody's could lower the banks' BCAs and ratings
if further credit losses weaken their solvency metrics on a standalone
basis or as a result of the merger.
The principal methodology used in these ratings was Banks published in
August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Canara Bank is headquartered in Bangalore, and reported assets of
INR7.1 trillion at 30 June 2019.
Oriental Bank of Commerce is headquartered in Delhi, and reported
assets of INR2.6 trillion at 30 June 2019.
Punjab National Bank is headquartered in Delhi, and reported assets
of INR7.7 trillion at 30 June 2019.
Syndicate Bank is headquartered in Bangalore, and reported assets
of INR3.0 trillion at 30 June 2019.
Union Bank of India is headquartered in Mumbai, and reported assets
of INR5.0 trillion at 30 June 2019.
List of affected ratings
Issuer: Canara Bank
..Outlook Actions:
....Outlook, Remains Stable
..Affirmations:
.... Adjusted Baseline Credit Assessment ,
Affirmed ba3
.... Baseline Credit Assessment , Affirmed
ba3
.... Short-term Counterparty Risk Assessment
, Affirmed P-3(cr)
.... Long-term Counterparty Risk Assessment
, Affirmed Baa3(cr)
.... Short-term Counterparty Risk Rating
(Foreign Currency) , Affirmed P-3
.... Short-term Counterparty Risk Rating
(Local Currency) , Affirmed P-3
.... Long-term Counterparty Risk Rating
(Foreign Currency) , Affirmed Baa3
.... Long-term Counterparty Risk Rating
(Local Currency) , Affirmed Baa3
.... Short-term Deposit Rating (Foreign
Currency) , Affirmed P-3
.... Short-term Deposit Rating (Local
Currency) , Affirmed P-3
.... Long-term Deposit Rating (Foreign
Currency) , Affirmed Baa3 with a stable outlook
.... Long-term Deposit Rating (Local
Currency) , Affirmed Baa3 with a stable outlook
Issuer: Canara Bank, London Branch
..Outlook Actions:
....Outlook, Remains Stable
..Affirmations:
.... Short-term Counterparty Risk Assessment
, Affirmed P-3(cr)
.... Long-term Counterparty Risk Assessment
, Affirmed Baa3(cr)
.... Short-term Counterparty Risk Rating
(Foreign Currency) , Affirmed P-3
.... Short-term Counterparty Risk Rating
(Local Currency) , Affirmed P-3
.... Long-term Counterparty Risk Rating
(Foreign Currency) , Affirmed Baa3
.... Long-term Counterparty Risk Rating
(Local Currency) , Affirmed Baa3
.... Junior Subordinate Medium-Term
Note Program (Foreign Currency) , Affirmed (P)B1
.... Subordinate Medium-Term Note Program
(Foreign Currency) , Affirmed (P)Ba3
.... Senior Unsecured Medium-Term Note
Program (Foreign Currency) , Affirmed (P)Baa3
.... Senior Unsecured Regular Bond/Debenture
(Foreign Currency) , Affirmed Baa3 with a stable outlook
Issuer: Oriental Bank of Commerce
..Outlook Actions:
....Outlook, Remains Stable
..Affirmations:
.... Adjusted Baseline Credit Assessment ,
Affirmed ba3
.... Baseline Credit Assessment , Affirmed
ba3
.... Short-term Counterparty Risk Assessment
, Affirmed P-3(cr)
.... Long-term Counterparty Risk Assessment
, Affirmed Baa3(cr)
.... Short-term Counterparty Risk Rating
(Foreign Currency) , Affirmed P-3
.... Short-term Counterparty Risk Rating
(Local Currency) , Affirmed P-3
.... Long-term Counterparty Risk Rating
(Foreign Currency) , Affirmed Baa3
.... Long-term Counterparty Risk Rating
(Local Currency) , Affirmed Baa3
.... Short-term Deposit Rating (Foreign
Currency) , Affirmed P-3
.... Short-term Deposit Rating (Local
Currency) , Affirmed P-3
.... Long-term Deposit Rating (Foreign
Currency) , Affirmed Baa3 with a stable outlook
.... Long-term Deposit Rating (Local
Currency) , Affirmed Baa3 with a stable outlook
Issuer: Punjab National Bank
..Outlook Actions:
....Outlook, Changed To Positive From
Stable
..Affirmations:
.... Adjusted Baseline Credit Assessment ,
Affirmed b1
.... Baseline Credit Assessment , Affirmed
b1
.... Short-term Counterparty Risk Assessment
, Affirmed P-3(cr)
.... Long-term Counterparty Risk Assessment
, Affirmed Baa3(cr)
.... Short-term Counterparty Risk Rating
(Local Currency) , Affirmed P-3
.... Long-term Counterparty Risk Rating
(Local Currency) , Affirmed Baa3
.... Long-term Issuer Rating (Foreign
Currency) , Affirmed Ba1 with a positive outlook
.... Short-term Deposit Rating (Foreign
Currency) , Affirmed NP
.... Short-term Deposit Rating (Local
Currency) , Affirmed NP
.... Long-term Deposit Rating (Foreign
Currency) , Affirmed Ba1 with a positive outlook
.... Long-term Deposit Rating (Local
Currency) , Affirmed Ba1 with a positive outlook
Issuer: Syndicate Bank
..Outlook Actions:
....Outlook, Remains Stable
..Affirmations:
.... Adjusted Baseline Credit Assessment ,
Affirmed ba3
.... Baseline Credit Assessment , Affirmed
ba3
.... Short-term Counterparty Risk Assessment
, Affirmed P-3(cr)
.... Long-term Counterparty Risk Assessment
, Affirmed Baa3(cr)
.... Short-term Counterparty Risk Rating
(Foreign Currency) , Affirmed P-3
.... Short-term Counterparty Risk Rating
(Local Currency) , Affirmed P-3
.... Long-term Counterparty Risk Rating
(Foreign Currency) , Affirmed Baa3
.... Long-term Counterparty Risk Rating
(Local Currency) , Affirmed Baa3
.... Short-term Deposit Rating (Foreign
Currency) , Affirmed P-3
.... Short-term Deposit Rating (Local
Currency) , Affirmed P-3
.... Junior Subordinate Medium-Term
Note Program (Foreign Currency) , Affirmed (P)B1
.... Subordinate Medium-Term Note Program
(Foreign Currency) , Affirmed (P)Ba3
.... Senior Unsecured Medium-Term Note
Program (Foreign Currency) , Affirmed (P)Baa3
.... Long-term Deposit Rating (Foreign
Currency) , Affirmed Baa3 with a stable outlook
.... Long-term Deposit Rating (Local
Currency) , Affirmed Baa3 with a stable outlook
Issuer: Syndicate Bank, London Branch
..Outlook Actions:
....Outlook, Remains Stable
..Affirmations:
.... Short-term Counterparty Risk Assessment
, Affirmed P-3(cr)
.... Long-term Counterparty Risk Assessment
, Affirmed Baa3(cr)
.... Short-term Counterparty Risk Rating
(Foreign Currency) , Affirmed P-3
.... Short-term Counterparty Risk Rating
(Local Currency) , Affirmed P-3
.... Long-term Counterparty Risk Rating
(Foreign Currency) , Affirmed Baa3
.... Long-term Counterparty Risk Rating
(Local Currency) , Affirmed Baa3
.... Junior Subordinate Medium-Term
Note Program (Foreign Currency) , Affirmed (P)B1
.... Subordinate Medium-Term Note Program
(Foreign Currency) , Affirmed (P)Ba3
.... Senior Unsecured Medium-Term Note
Program (Foreign Currency) , Affirmed (P)Baa3
.... Senior Unsecured Regular Bond/Debenture
(Foreign Currency) , Affirmed Baa3 with a stable outlook
Issuer: Union Bank of India
..Outlook Actions:
....Outlook, Remains Stable
..Affirmations:
.... Adjusted Baseline Credit Assessment ,
Affirmed ba3
.... Baseline Credit Assessment , Affirmed
ba3
.... Short-term Counterparty Risk Assessment
, Affirmed P-3(cr)
.... Long-term Counterparty Risk Assessment
, Affirmed Baa3(cr)
.... Short-term Counterparty Risk Rating
(Foreign Currency) , Affirmed P-3
.... Short-term Counterparty Risk Rating
(Local Currency) , Affirmed P-3
.... Long-term Counterparty Risk Rating
(Foreign Currency) , Affirmed Baa3
.... Long-term Counterparty Risk Rating
(Local Currency) , Affirmed Baa3
.... Short-term Deposit Rating (Foreign
Currency) , Affirmed P-3
.... Short-term Deposit Rating (Local
Currency) , Affirmed P-3
.... Junior Subordinate Medium-Term
Note Program (Foreign Currency) , Affirmed (P)B1
.... Subordinate Medium-Term Note Program
(Foreign Currency) , Affirmed (P)Ba3
.... Senior Unsecured Medium-Term Note
Program (Foreign Currency) , Affirmed (P)Baa3
.... Long-term Deposit Rating (Foreign
Currency) , Affirmed Baa3 with a stable outlook
.... Long-term Deposit Rating (Local
Currency) , Affirmed Baa3 with a stable outlook
Issuer: Union Bank of India, Hong Kong Branch
..Outlook Actions:
....Outlook, Remains Stable
..Affirmations:
.... Short-term Counterparty Risk Assessment
, Affirmed P-3(cr)
.... Long-term Counterparty Risk Assessment
, Affirmed Baa3(cr)
.... Short-term Counterparty Risk Rating
(Foreign Currency) , Affirmed P-3
.... Short-term Counterparty Risk Rating
(Local Currency) , Affirmed P-3
.... Long-term Counterparty Risk Rating
(Foreign Currency) , Affirmed Baa3
.... Long-term Counterparty Risk Rating
(Local Currency) , Affirmed Baa3
.... Junior Subordinate Medium-Term
Note Program (Foreign Currency) , Affirmed (P)B1
.... Subordinate Medium-Term Note Program
(Foreign Currency) , Affirmed (P)Ba3
.... Senior Unsecured Medium-Term Note
Program (Foreign Currency) , Affirmed (P)Baa3
.... Senior Unsecured Regular Bond/Debenture
(Foreign Currency) , Affirmed Baa3 with a stable outlook
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Alka Anbarasu
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
