Moody affirms ratings of 3 Indian public sector banks, upgrades the standalone credit profiles

 Moody's Ratings (Moody's) has affirmed the Baa3 long term local and foreign currency bank deposit ratings of Bank of Baroda (BOB), Canara Bank (Canara) and Punjab National Bank (PNB). At the same time, Moody's has upgraded the Baseline Credit Assessments (BCAs) of the three banks to ba2 from ba3. Moody's has maintained the stable outlooks on the long-term ratings of all three banks.

Moody's continues to assume a very high level of government support in the banks' ratings, leading to a two-notch uplift in their Baa3 deposit ratings from their ba2 BCAs.

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BOB's, Canara's and PNB's NPL ratios respectively declined to 2.9%, 4.2% and 5.7% as of 31 March 2024 from 3.8%, 5.4% and 8.7% a year earlier, supported by lower slippages as well as stronger recoveries and higher write-offs.

The banks' capitalization will remain stable over the next 12-18 months amid high loan growth. As of 31 March 2024, the Common Equity Tier 1 ratios of BOB, Canara and PNB were broadly stable from the year before at 12.5%, 11.6% and 11.0%, respectively.

Their improved asset quality has translated into higher profitability because of lower credit costs. However, an increase in funding costs will lead to some moderation in their profitability over the next 12-18 months.

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Funding and liquidity will remain the banks' key credit strengths, underpinned by their status as public sector banks in India and linkages with the government, which result in good deposit franchises. At the same time, their respective liquid banking assets as a proportion of tangible banking assets have remained above 30% in recent years.

This has been stated by the credit rating agency in a statement issued.

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