Singapore, September 04, 2020 -- Moody's Investors Service ("Moody's") has taken rating actions on the
following five Indian banks: (1) Bank of Baroda (BOB), (2)
Bank of India (BOI), (3) Canara Bank (Canara), (4) Punjab
National Bank (PNB) and (5) Union Bank of India (UBI).
Moody's has downgraded the long-term local and foreign currency
deposit ratings of BOB, BOI, Canara and UBI to Ba1 from Baa3
and their Baseline Credit Assessments (BCAs) to b1 from ba3. The
outlook on the ratings of the four banks is negative.
At the same time, Moody's has affirmed PNB's long-term
local and foreign currency deposit ratings at Ba1 and its BCA at b1.
PNB's ratings outlook is changed to negative from stable.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL431132
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
DEEPENING ECONOMIC SLOWDOWN EXACERBATED BY THE CORONAVIRUS OUTBREAK WILL
STRAIN THE STANDALONE CREDIT STRENGTH OF THE BANKS
The economic shock from the coronavirus pandemic is exacerbating an already
material slowdown in India's economic growth, weakening borrowers'
credit profiles and hurting Indian banks' asset quality. Prolonged
financial stress among households, weak job creation and a credit
crunch among non-bank financial companies will lead to a rise in
non-performing loans, delaying the ongoing clean-up
of banks' balance sheets.
DOWNGRADE OF BOB, BOI, CANARA AND UBI'S BCAs AND RATINGS
Today's rating action concludes the review for downgrade initiated
on 2 June 2020.
The BCA downgrades take into consideration rising risks to the banks'
asset quality as a result of the severe economic contraction, which
will result in an increase in credit costs. This increase in credit
costs will hurt profitability and also strain the banks' modest
capitalization, reversing recent improvements. Funding and
liquidity continue to be key credit strengths given their status as public
sector banks, which results in good deposit franchises.
The banks' Ba1 long-term local and foreign currency deposit
ratings incorporate three-notches of uplift from their b1 BCAs
to reflect Moody's assumption of a very high probability of support
from the Government of India (Baa3 negative) in times of need.
Moody's assumption takes into account the banks' deposit market
shares as well as their linkages with the government, including
by way of ownership.
AFFIRMATION OF PNB'S BCA AND RATINGS
The affirmation of PNB's Ba1 long-term local and foreign currency
deposit ratings, which incorporates a three-notch uplift
for government support from its b1 BCA, reflects Moody's expectation
that deteriorating asset quality and profitability will weigh on its capitalization.
However, PNB's financial metrics had been improving prior
to the economic slowdown, which combined with the bank's good
funding and liquidity mitigates the negative impact on its credit profile
of deteriorating asset quality and profitability. The three-notch
uplift for government support reflects PNB's deposit market share as well
as its linkages with the government.
NEGATIVE OUTLOOK ON THE RATINGS
The negative outlook factors in further downside risks to the banks'
financial profiles because of India's uncertain operating environment.
Moody's will subsequently withdraw the ratings of Bank of India, Bank of India (London) and Bank of India, Jersey Branch.
Moody's has decided to withdraw the ratings of Bank of India, Bank
of India (London) and Bank of India, Jersey Branch for its own business reasons. Please refer to
the Moody's Investors Service Policy for Withdrawal of Credit Ratings,
available on its website, www.moodys.com.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
FACTORS THAT COULD LEAD TO AN UPGRADE
Given the negative outlooks, the ratings of BOB, Canara,
PNB and UBI are unlikely to be upgraded in the next 12-18 months.
Nevertheless, the rating outlooks could be changed to stable if
macroeconomic conditions in India improve or if there are improvements
in the banks' standalone credit strength, including strengthening
capitalization or a less severe deterioration in asset quality than currently
expected.
FACTORS THAT COULD LEAD TO A DOWNGRADE
A downgrade of the banks' BCAs will lead to a downgrade of their
ratings. Moody's will downgrade the banks' BCAs if
the rating agency expects their solvency to deteriorate further because
of an increase in problem loans, coupled with significant declines
in earnings, which would weaken their capitalization.
Any indication of diminishing government support for the banks will also
lead to a downgrade of their ratings.
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Bank of Baroda is headquartered in Mumbai and reported total assets of
INR11.3 trillion at 30 June 2020.
Bank of India is headquartered in Mumbai and reported total assets of
INR6.8 trillion at 30 June 2020.
Canara Bank is headquartered in Bangalore and reported assets of INR10.5
trillion at 30 June 2020.
Punjab National Bank is headquartered in Delhi and reported total assets
of INR12.3 trillion at 30 June 2020.
Union Bank of India is headquartered in Mumbai and reported assets of
INR10.8 trillion at 30 June 2020.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are all solicited credit
ratings. Additionally, the List of Affected Credit Ratings
includes additional disclosures that vary with regard to some of the ratings.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL431132
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Disclosure to Rated Entity
• Endorsement
• Lead Analyst
• Releasing Office
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
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.
Rebaca Tan
Asst Vice President - Analyst
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
