Crisil downgrades eight public sector banks

Crisil has downgraded its ratings on the securities of eight Public Sector Banks (PSBs).The rating agency changed the outlook on instruments of five other lenders to negative.

Crisil has downgraded its ratings of Bank of India, Central Bank of India, Corporation Bank, Dena Bank, IDBI Bank, Indian Overseas Bank, Syndicate Bank and Uco Bank. The rating comnimpany changed the outlook, to negative from stable. Meanwhile, it also changed outlook on certain securities of five other banks viz. Andhra Bank, Bank of Baroda, Canara Bank, Punjab National Bank and Punjab and Sindh Bank.

Crisil is also expecting that bad loans of public sector banks will rise to Rs.7.1 lakh crore by FY17 from around Rs 4 lakh crore as on FY15. On account of Non Performing Assets (NPAs), margins of banking sector remained under pressure. The rating agency is judging the slippages to NPAs, which are likely to remain high driven by stretched cash flow of highly leveraged corporates.

As per the Reserve Bank of India (RBI) guideline, banks are going to implement marginal cost of funds based lending rate from April 1, 2016. The proportion of zero income based bad loans generation by banks is increasing, and as an effect Net Interest Margin(NIM)  will be narrowed down in future term.

Crisil pointed out that the earnings of majority of public sector banks decreased and are expecting net loss in current financial year. The ratings agency also clarified that capital expenditure plan from RBI and government is not enough to clean bad loans. The public sector banks may face challenges for capital raising via a private route due to bad financial performance and low valuations.

The share prices of downgraded banks remained low in early trades on bourses on March 11. The Bank Nifty declined by 0.5 per cent in early trade on an intraday basis.Meanwhile, Bank Nifty is trading in the range of 15300 to 15350.