Crisil Ratings on Thursday revised the outlook on state-run Indian Bank’s four tier-2 bond issues worth a total ₹1,600 crore to negative, while retaining the ratings of these debt instruments at AAA.
It also downgraded rating of ₹500 crore worth additional tier 1 (AT1) bonds to AA from AA+ and revised the outlook to negative, according to a regulatory filing by the bank.
The domestic ratings agency had ‘Rating Watch with Developing Implications’ outlook on the Basel III compliant AT1 bonds and tier 2 bonds.
“The ‘negative’ outlook on debt instruments reflect the potential stress that the bank’s asset quality and consequently its profitability may witness on account of the current challenging macro environment,” as per the BSE filing.
The bank amalgamated Allahabad Bank with itself effective April 1, 2020.
Post the amalgamation, Indian Bank’s asset quality metrics have weakened as compared to peers in the rating category, it said.
NPA level
In the quarter ended June, the lender’s gross NPA ratio stood at 10.90 per cent while net NPA level was at 3.76 per cent.
“The downgrade in the rating of tier 1 bonds (under Basel III) is on account of lower eligible reserves position of the merged bank,” it said.
The ‘Crisil AAA’ rating on the ratings on the tier 2 bonds, infrastructure bonds, upper tier 2 bonds and lower tier 2 bonds continues to factor in expectation of strong support that Indian Bank is likely to receive from the government, it said.
The rating also reflects the merged entity’s larger balance sheet size, wider geographic reach leading to deeper penetration, strong resource profile with high proportion of current and savings account (CASA) deposits and adequate capitalisation, as per the filing.