Rating agency ICRA has downgraded the bonds of state-run lender Oriental Bank of Commerce (OBC) following weak financial performance in 2016-17 as bad loans surged.
“The ratings downgrade takes into account OBC’s weak operating and financial performance in Q4FY2017 and FY2017, as reflected in its increasing non-performing assets (NPA) and losses during FY2017, leading to a weakening of its capitalisation and solvency levels,” the rating agency said.
The lender posted a loss of ₹1,218 crore during the fourth quarter of the financial year FY’17 compared with ₹21.6 crore profit in the year-earlier period.
For the financial year 2016-17, losses stood at ₹1,094 crore as compared with a profit of ₹156 crore in the year-earlier period. Provisions for bad loans almost doubled to ₹6,315 crore in FY’17.
ICRA said the ratings downgrade and negative outlook were driven by weak outlook on the bank’s asset quality, profitability as well as increasing capital requirements under Basel III and the limited headroom available to raise capital from non-government sources given the Government of India (GoI) ownership of 58.38% stake as on March 31, 2017.
The bank’s gross non-performing assets (NPA) and net NPA increased to 13.73% and 8.96% respectively as on March 31, 2017 from 9.57% and 6.70% respectively as on March 31, 2016.
Operating expenses
“The increase in NPAs has resulted in a decline in net interest income (NII) during FY’17 amid increasing operating expenses thereby resulting in lower core operating profits before provisions and trading profits,” ICRA said.
