Crisil upgrades four banks

The ratings of Andhra Bank, Central Bank of India, Dena Bank and Punjab & Sind Bank have been upgraded by credit rating agency Crisil. The rating action follows the Government's recent announcement that it will infuse additional capital in these public sector banks (PSBs).

The Government's move to increase its stake in PSBs to at least 58 per cent will materially strengthen the banks' capitalisation and will also enhance their flexibility to raise additional equity capital from the market, said Crisil in a statement.

The credit rating on the hybrid instruments of Andhra Bank (Tier I perpetual bonds/ upper Tier II bonds) and Central Bank of India (upper Tier-II bonds) have been upgraded to ‘AA+/stable' from ‘AA/stable'. In the case of Punjab & Sind Bank, the rating on its lower Tier-II bonds has been upgraded to ‘AA+/stable' from ‘AA/stable'.

The credit rating on the hybrid instruments of Dena Bank (Tier-I perpetual bonds/ upper Tier-II bonds) has been upgraded to ‘AA/stable' from ‘A+/ positive'.

Instruments rated ‘AA' offer a high degree of safety, with regard to timely payment of financial obligations, according to Crisil's rating scale.

Lending capacity

Early last month, the Cabinet had approved an additional amount of Rs 6,000 crore, in addition to the Rs 15,000 crore already provided in the Budget 2010-11, to ensure Tier I CRAR (Capital to Risk Weighted Assets) of all PSBs is at 7 per cent and also to raise Government's holding in all PSBs to 58 per cent. The proposed capital infusion, according to a Government release, would enhance the lending capacity of the PSBs to meet the credit requirement of the economy to maintain and accelerate the economic growth momentum.

“We believe that the proposed increase in the Government's stake through equity infusion is a qualitatively superior form of support than the earlier infusion in the form of hybrid capital,” said Mr Pawan Agrawal, Director (Ratings), Crisil.

The Government had infused Rs 3,100 crore of capital into PSBs in 2008-09 and 2009-10. However, this was entirely in the form of preference shares or innovative perpetual debt instruments. In 2010-11, the government has not only approved a significantly higher amount of Rs 21,000 crore towards bank capital, but more than 60 per cent of it is now expected to be provided in the form of equity, Crisil said.