Credit ratings agency Moody’s today lowered the rating outlook of Punjab National Bank, Bank of Baroda and Canara Bank from stable to negative on account of rising bad loans.

“These Indian banks are particularly challenged by the prevailing operating environment, characterised by high inflation and high interest rates,” Moody’s said in a statement.

The revision in rating outlook, it said, “reflects the increased risk posed by current trends in asset quality, with continuing rise in gross non-performing loans and restructured loans pressuring profits and capital”.

The prevailing economic conditions will reduce the repayment ability of some corporate borrowers and impact the banks, it said.

“Moody’s analysis takes into account these banks’ comparatively low provisioning, exposing their capital buffers to the risk of erosion in the event that those difficult conditions persist,” the statement added.

The agency, however, has kept the foreign currency long term rating of the three PSU banks unchanged at ‘Baa2’ is a medium grade rating which reflects moderate credit risk.

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