Global rating agency Moody’s, on Wednesday, upgraded the outlook for Punjab National Bank to ‘positive’ from ‘stable’, following the government’s mega bank-merger plans.

As part of rating actions on five public sector banks that will be part of the merger, Moody’s has affirmed the local and foreign currency deposit ratings of Canara Bank, Oriental Bank of Commerce, Syndicate Bank, and Union Bank at Baa3/P-3.

The outlook on Canara Bank, OBC, Syndicate Bank and Union Bank are maintained at ‘stable’, it further said.

Finance Minister Nirmala Sitharaman had, on August 30, announced the merger of 10 public sector banks into four lenders.

Moody’s said it expects that in the proposed merger of public sector lenders, the acquiring banks will receive sufficient capital injections to absorb potential write-downs, if any, arising from the merger.

“Post-merger, Moody’s expects that the banks will be able to maintain a common equity tier 1 (CET 1) ratio above the Basel III requirement of 8 per cent, which include the minimum CET 1 ratio of 5.5 per cent and capital conservation buffer of 2.5 per cent,” Moody’s Investors Service said in a release on Wednesday.

Combined with the capital infusion plans, Moody’s said it expects the financial profiles of Canara Bank and Union Bank to fundamentally remain unchanged following the merger, and the financial profile of Punjab National Bank to strengthen, compared to their financial profiles on standalone pre-merger basis.

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