Rating agencies junk Punjab National Bank after latter's biggest-ever quarterly loss
MUMBAI: Days after the Punjab National Bank posted its biggest-ever quarterly loss, rating agencies have queued up to downgrade its status to junk.
On Monday, Moody’s Investor Services reduced PNB’s rating to Ba1 from Baa3, besides downgrading its foreign currency issuer rating to Ba1 from Baa3. India Ratings too cut PNB’s long-term issuer rating to AA+ from AAA and outlook to negative.
The country’s second largest state-run lender last week reported its biggest-ever quarterly loss of Rs 13,417 crore, partly on account of the Rs 14,000 crore fraud involving diamantaires Nirav Modi and Mehul Choksi.
The large loss depleted capital, which India Ratings said could lead to operational restrictions from RBI, while Moody’s warned further downgrades if the bank’s capitalisation worsens and if the government support diminishes.
It estimated PNB’s Basel III capital requirement to be `12,000-13,000 crore in FY19, including a capital conservation buffer. “The downgrade of the bank’s BCA and ratings reflects the negative impact of the discovery of a number of fraudulent transactions on the bank’s standalone profile, particularly its capital position,” Moody’s said.
Moody’s retained PNB’s ratings outlook as stable, but downgraded the bank’s baseline credit assessment and adjusted BCA to B1 from Ba3.
It expects the lender to receive capital support from the government and that it will be able to release some capital from the sale of its non-core assets such as its real estate holdings and a partial stake sale in its housing finance subsidiary, PNB Housing Finance, but these won’t suffice.
Meanwhile, India Ratings said the downgrade reflects PNB reporting a common equity Tier-1 ratio of 5.96 per cent, below the minimum regulatory requirement of 7.375 per cent, while the ‘negative’ outlook reflects a possibility of RBI invoking a regulatory action on PNB, constraining its operations.