PNB Canara AND IDBI Bank Under Scanner

PNB, IDBI, Canara to be put under close scanner: Fitch ratings-Business Stand=Abhijit Lele  |  Mumbai 

September 27, 2013 

Indian banks, especially public sector banks will see more rise in bad loans, restructured assets--------------
With growing vulnerability to adverse business environment and pressure from stressed assets, Rating agency Fitch today said it will step up scrutiny of three public sectors banks -- Punjab National Bank (PNB), IDBI Bank and Canara Bank.

Indian banks, especially public sector banks will see more bad days (rise in bad loans and restructured assets) ahead (in next 12-18 months) due to long spell economic slowdown, banking sector analysts with Fitch analysts said in a conference call.

Agency is slated to release report on Indian Banking system early next week.

With slow growth in earning and higher credit costs, the capital position of the state-owned banks will appear to be even weaker as we go forward. Their dependence on government for capital injection may grow.

PNB has seen a sharp increase in its stressed assets, which stood at close to 15% of loans at FY13 (FY12: around 11%. This is highest ratio amongst Fitch-rated state-owned banks. Fitch expects the proportion of stressed assets to rise further. 

PNB's stressed assets stand at 134% of its equity.

The weak equity position of Delhi-based public sector lender is already weak. PNB would take longer to bounce back even under a cyclical recovery. 

Notwithstanding its funding and profitability strength, Fitch maintains a negative bias on PNB's Viability rating.Referring to IDBI Bank and Canara Bank, the rating agency said their present viability rating takes into account in the structural weaknesses on the funding side and their business model.

These two banks have been wholesale-focused, which for IDBI partly stems from its legacy as a development finance institution.

Profitability, as a result, has traditionally been on the lower side for both and this has been further compressed in recent times due to worsening asset quality.

Canara total stressed assets book was10% of loan portfolio (NPAs ratio 2.6%) and for IDBI reported total stressed assets stood at nine% (NPL ratio: 3.2%).

http://www.business-standard.com/article/finance/pnb-idbi-canara-to-be-put-under-close-scanner-fitch-ratings-113092700855_1.html