Moody’s Investors Service has downgraded Central Bank of India and Indian Overseas Bank (IOB) to below ‘investment grade’.
The local and foreign currency deposit ratings of these two banks have been scaled down to Ba1 from Baa3.
IOB’s senior unsecured debt issued from its Hong Kong branch was also downgraded to Ba1 from Baa3.
The rating action reflects Moody’s assumption of a lower level of support from the government, given its recent policy change.
The Modi government had recently gone in for marked departure in its approach to allocate capital to State-owned banks, while introducing criteria linked to profitability of banks.
This is a pointer that government wants to differentiate between State-owned banks when distributing capital. This policy change also means that the standalone credit quality of public sector banks has become a more important consideration for the senior unsecured and deposit ratings of the banks against earlier when Moody’s rated all State-owned banks at the same level as the Indian government.
Stable outlook Moody’s has also now maintained its stable outlook for IOB’s senior unsecured debt and local and foreign currency deposit ratings.
At the same time, Moody’s has maintained a negative outlook on CBI’s local and foreign currency deposit ratings.
The Centre had in early February announced its intent to inject ₹6,990-crore capital into nine State-owned banks. This is out of the earlier specified Budget allocation of ₹11,200 crore.
For 2015-16, the Centre has allocated ₹7,940 crore for capital infusion, even as the requirement remains high.