Moody’s downgrades Central Bank, IOB on low govt funding

Both these lenders have the weakest standalone credit profiles among the banks.

Rating agency Moody’s on Tuesday downgraded Central Bank of India and Indian Overseas Bank’s local and foreign currency deposit ratings, anticipating low level of support from the government to these banks.

“The rating action reflects our assumption of a lower level of support from the government following its announcement that indicates that it wishes to differentiate between the state-owned banks when distributing capital,” the rating agency said in a release.

The rating agency downgraded local and foreign currency deposit ratings of the two banks to Ba1 and Baa3.

Recently, the government infused Rs.6,990 crore into nine out 28 state-run banks, based on their return on equity and return on assets against a budgeted Rs.11,200 crore.

For 2015-16, the government has only allocated Rs.7,940 crore for 28 banks despite much higher requirements but allowed them to raise money from the capital markets by bringing down the government stake to 52 per cent. The agency also downgraded IOB’s senior unsecured debt, issued from its Hong Kong branch, to Ba1 from Baa3.

The report, however, said it continues to assume a high probability that the government would support these two banks. It further said the changes in the government’s policy indicate that standalone quality of state-run banks has become a more important consideration for senior unsecured and deposit ratings of the banks.

For Central Bank’s local and foreign currency deposit ratings, the agency continues to have a negative outlook, while for IOB’s senior unsecured debt and local and foreign currency deposit ratings, it has maintained a stable outlook. It said both these lenders have the weakest standalone credit profiles among the banks it rates here as indicated by their baseline credit assessments at b3 and b2 .