After IDBI Bank, Rating Downgrade Hits Oriental Bank Of Commerce
ICRA downgraded Rs 6,700-crore debt securities of Oriental Bank Of Commerce.
Rating agency ICRA Ltd. on Wednesday downgraded the debt securities of state-owned Oriental Bank of Commerce Ltd. citing the lender’s weak operational and financial performance. Rs 6,700 crore worth of tier-1 and tier-2 bonds have been downgraded, the rating agency said.
Specific securities downgraded include Rs 1,200 crore in tier-2 bonds, with their rating pegged down from AA to AA-. The rating agency has also downgraded Rs 500 crore in upper tier-2 bonds to A+ from AA-. Other instruments including the bank’s additional tier-1 (AT-1) bonds have also been downgraded by a notch to A from A+.
The rating agency has maintained a negative outlook on these ratings, suggesting that further downgrades cannot be ruled out.
The revision takes into account the increase in bad loans and the weak capital position of the bank, said ICRA in its rating note.
The ratings downgrade and negative outlook on the ratings are driven by ICRA’s weak outlook on the bank’s asset quality, profitability as well as the 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 percent stake as on March 31, 2017.ICRA Ratings Note
For the quarter ended March 2017, the bank reported gross non performing assets (NPAs) of 13.73 percent of total loans compared to 9.57 percent at the end of the previous fiscal. The surge in bad loans led to high provisioning needs and heavy losses. For the fiscal 2017, the bank reported a net loss of RS 1,094 crore.
This has resulted in the CET (common equity tier-1) ratio falling to 7.59 percent in fiscal 2017 compared to 8.52 percent at the end of fiscal 2016. ICRA points out that the bank’s total capital requirements remain large and are estimated to be between Rs 3,000 crore and Rs 4,500 crore. This is between 60-90 percent of the bank’s current market capitalisation, the rating agency said.
Oriental Bank of Commerce is not alone. Other state-owned lenders who have seen a jump in bad loans and a fall in profits have also been downgraded.
IDBI Bank is among this list of such lenders. Over the past week, domestic rating agencies, like ICRA and CRISIL, and their foreign peers, like Moody’s and Fitch, have all downgraded the rating on securities of IDBI Bank due to the high level of stressed assets on the bank’s books.
