GET Stock QuotesNews18 APP
News18 English
»
2-min read

Moody's Downgrades PNB, Cites Negative Impact of Fraud on Capital

The agency downgraded PNB's foreign currency issuer rating by a notch to 'ba1', which is a non-investment grade, from 'Baa3'- meaning below investment grade.

PTI

Updated:May 21, 2018, 1:54 PM IST
facebookTwittergoogleskypewhatsapp
Moody's Downgrades PNB, Cites Negative Impact of Fraud on Capital
A Moody's sign is displayed on the company's corporate headquarters in New York. (Reuters) (File Photo)
Loading...
New Delhi:International rating agency Moody's today said it has downgraded state-run Punjab National Bank's (PNB) rating to Ba1/NP from Baa3/P-3, due to impact on the lender's profitability following Nirav Modi-fraud case.

It kept the ratings outlook as stable but also downgraded the bank's baseline credit assessment (BCA) and Adjusted BCA to b1 from ba3.

"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," the rating agency said in a report here today.

The downgrade also reflects the weak internal controls and processes of the bank, given that the fraudulent transactions were undetected for a number of years.

In February, the bank announced that it had discovered some fraudulent and unauthorised transactions amounting to Rs 11,390, billion (USD 1.7 billion).

Based on the bank's subsequent announcements, PNB's total exposure to these transactions amounts to Rs 14,400 crore (USD 2.2 billion).

Following the announcement of the fraudulent transaction, Moody's initiated a review of the bank's ratings on February 20, 2018, which was completed now.

The rating agency expects that the lender will 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 as well as a partial stake sale in its listed housing finance subsidiary, PNB Housing Finance.

"Nevertheless, these sources will unlikely prove sufficient to restore the bank's capitalisation to levels before the fraudulent transactions were discovered," the report said.

The report estimates that PNB will require external capital of about Rs 12,000-13,000 crore in FY2019 to meet the minimum Basel III CET1 ratio of 8 per cent by March 2019, including a capital conservation buffer.

This estimate takes into account the ageing basis provisions for the non-performing loans (NPLs), the deferred provisions for the fraud, investment losses and employee benefit expenses as well as a reduction in risk weighted assets, it said.

The report said while the government has budgeted an infusion of Rs 65,000 crore into 21 public sector banks, it expects that the large capital shortfall will negatively impact PNB's ability to grow its loan book over the next year.

The rating agency, however, said it will downgrade PNB's BCA and ratings if the bank's capitalisation worsens beyond what it's expects in this ratings action.

Any indication that government support to the bank has diminished will also lead to a ratings downgrade, it added.
Read full article
Loading...
Next Story
Next Story

Also Watch

facebookTwittergoogleskypewhatsapp
Most Active
Company Price Change %Gain
Reliance 1,101.30 -4.34
Indiabulls Hsg 653.80 -17.10
Dewan Housing 210.55 -10.75
Yes Bank 217.90 -6.04
Bajaj Finance 2,140.50 -0.47
Company Price Change %Gain
Sudarshan Chem 385.05 2.64
Indiabulls Hsg 654.25 -17.06
Reliance 1,101.65 -4.11
Dewan Housing 211.80 -10.37
Yes Bank 217.70 -6.06
Top Gainers
Company Price Change %Gain
HPCL 215.90 4.15
Sun Pharma 609.95 2.78
Kotak Mahindra 1,198.95 1.95
Bharti Infratel 264.45 1.71
Vedanta 211.10 1.51
Company Price Change %Gain
Sun Pharma 608.40 2.52
Kotak Mahindra 1,199.55 1.83
Vedanta 211.15 1.51
HUL 1,579.20 1.16
ITC 288.45 0.73
Top Losers
Company Price Change %Gain
Indiabulls Hsg 653.80 -17.10
HCL Tech 958.50 -6.42
Yes Bank 217.90 -6.04
HDFC 1,660.25 -4.46
Reliance 1,101.30 -4.34
Company Price Change %Gain
Yes Bank 217.70 -6.06
HDFC 1,661.30 -4.32
Reliance 1,101.65 -4.11
Hero Motocorp 2,711.00 -3.70
Infosys 682.60 -3.11

Live TV

Loading...
Loading...