Icra wants more clarity before downgrading public sector banks

MUMBAI: Even as the markets have given a thumbs down to public sector bank stocks after a fraud was unearthed at state-run Punjab National Bank which has also hit many other lenders, rating agency Icra still prefers to wait and watch before downgrading the sector

“One is still waiting to get clarity on quantum of impact. We will have to see how much hit each bank will take” said senior officials at ratings firm Icra. Also one needs to know the system level impact. A fraud concerning letter of Undertaking with respect to foreign trade finance estimated to be over Rs 11000 crore by one of the leading Diamond Merchant Nirav Modi with the state owned Punjab National Bank was unearthed in mid- February. Investigations indicate that the fraud amount could be much more involving more banks.

"Most of our ratings for public sector banks continue to be on negative outlook or ratings watch" said Karthik Srinivasan, senior vice president and group head – Financial sector ratings and Anil Gupta, vice president, Sector Head – financial sector ratings. “ Talking of public sector banks, one does take comfort from sovereign ownership”


Icra in a presentation made to the media on Thursday said that outlook may be changed to stable for few PSBs.

The ratings firm did not change ratings or outlook for public sector banks ever after the government announced a Rs 81,000 crore recapitalisation scheme announced by the government in December. Icra says that only one PSB has had a revision in outlook, where outlook is revised to positive

It said outlook on capital position and profitability continues to remains weak despite recapitalisation. But ratings and outlooks for private banks remains unchanged.