Fitch downgrades PNB's viability rating to 'b' from 'bb-'

Fitch Ratings today downgraded the viability rating (VR) of scam-hit Punjab National Bank to 'b' from 'bb-', and maintained it on rating watch negative (RWN).

Published: 04th June 2018 05:43 PM  |   Last Updated: 05th June 2018 02:19 AM   |  A+A-

The logo of Punjab National Bank is seen outside of a branch of the bank. (Photo | Reuters)

By Express News Service

MUMBAI: In a setback to Punjab National Bank (PNB), Fitch Ratings on Monday downgraded the state-run lender’s viability rating for the second time in two months, besides maintaining a negative rating watch. The move comes weeks after another rating agency Moody’s downgrading PNB’s rating to Ba1/NP from Baa3/P-3.

Fitch, however, has affirmed the bank’s long-term issuer default rating at bbb- and its support rating floor and support rating at bbb- and 2 respectively. “The two-notch downgrade to PNB’s VR is a reflection of the significant deterioration in its standalone credit profile, mainly due to a drop in its core capital ratio that was bigger than our expectation,” it said. Fitch had earlier downgraded the country’s second large public sector lender’s viability rating to bb- from bb in April, following the Nirav Modi fraud.

“The deterioration in its core capitalisation was caused by a sharp increase in its non-performing loans, including the $2.2 billion in fraudulent transactions reported in February 2018, and the related increase in credit costs, which resulted in large losses in the financial year ended March 2018,” Fitch said, adding that the decline highlights the management’s weaker execution and previous underwriting and oversight gaps.

It may be noted that PNB reported a net loss of Rs 13,417 crore in the quarter ended March 2018, primarily due to higher provisions for bad loans. The bank also made provisions worth Rs 7,178 crore in the Nirav Modi case. The bank also said it will set aside a similar amount as further provisions this fiscal. The bank’s gross NPA ratio as on March 2018 stood at 18.38 per cent as against 12.11 per cent in the preceding quarter.

Fitch said it maintained a negative rating watch on PNB due to pressures relating to asset quality, earnings and profitability, which will persist at least over the next few quarters.

“Fitch will continue to focus on the bank’s ability to raise a significant portion of its capital needs — independent of the government — to counter pressures on its asset quality and earnings performance, failing which further action could be taken on the bank’s standalone creditworthiness,” it said.

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