Capital requirements of PSU banks for provisioning of bad loans are likely to shoot up exposing them to possible downgrades, S&P said on Tuesday as it trimmed outlook on Bank of India to ‘negative’ from ‘stable’.
It also put Indian Overseas Bank on ‘CreditWatch’ with negative implications.
Standard & Poor’s Ratings Services said the PSU lenders are in a weaker position on the capitalisation front than their private sector peers and may find it difficult to raise capital given their weak performance.
“Any sharp deterioration in asset quality could further weaken banks’ credit profiles,” S&P said in a report.
Hit hard by mounting bad loans, many leading state-owned banks, including Bank of India (BoI) and IDBI Bank, reported their highest ever quarterly losses totalling over Rs 12,000 crore, while banking majors like SBI and PNB witnessed sharp erosion in profits.
The Reserve Bank has asked banks to recognise select weak loans as non-performing loans over the quarters ending December 2015 and March 2016, and shore up provisioning.
The US-based agency has retained ‘negative’ outlook on the ratings of Syndicate Bank.
Revising the outlook on BoI to negative, S&P said it expects its asset quality to continue to weaken over the next 12-18 months, further straining the bank’s capitalisation and profitability.
As regards IOB, it said a ‘CreditWatch’ with negative implication stems from S&P’s expectation that mounting losses would strain the state-run lender’s capital base.