PNB<\/a>) to negative from stable.<\/p>\nAt the same time, the agency has affirmed PNB\u2019s long-term local and foreign currency deposit ratings at Ba1 and its BCA at b1. It attributed changes to the economic shock from the coronavirus pandemic, which is exacerbating an already material slowdown in India\u2019s economic growth, weakening borrowers\u2019 credit profiles and hurting banks\u2019 asset quality.<\/p>\n
\u201cProlonged financial stress among households, weak job creation and a credit crunch among non-bank financial companies will lead to a rise in non-performing loans, delaying the ongoing clean-up of banks\u2019 balance sheets,\u201d Moody\u2019s said.<\/p>\n
The BCA downgrades take into consideration rising risks to the banks\u2019 asset quality as a result of the severe economic contraction, which will result in an increase in credit costs. This increase in credit costs will hurt profitability and also strain the banks\u2019 modest capitalisation, reversing recent improvements. Funding and liquidity continue to be key credit strengths given their status as PSBs, which results in good deposit franchises, Moody\u2019s said.<\/p>\n
The banks\u2019 Ba1 long-term local and foreign currency deposit ratings incorporate three notches of uplift from their b1 BCAs to reflect Moody\u2019s assumption of a very high probability of support from the government in times of need. \u201cMoody\u2019s assumption takes into account the banks\u2019 deposit market shares as well as their linkages with the government, including by way of ownership,\u201d the agency said.<\/p>\n
The affirmation of PNB\u2019s Ba1 long-term local and foreign currency deposit ratings, which incorporates a three-notch uplift for government support from its b1 BCA, reflects Moody\u2019s expectation that deteriorating asset quality and profitability will weigh on its capitalisation. However, PNB\u2019s financial metrics had been improving before the economic slowdown, which, combined with the bank\u2019s good funding and liquidity, mitigate the negative impact on its credit profile of deteriorating asset quality and profitability. \u201cThe three-notch uplift for government support reflects PNB\u2019s deposit market share as well as its linkages with the government,\u201d Moody\u2019s said. The negative outlook factors in further downside risks to the banks\u2019 financial profiles because of India\u2019s uncertain operating environment.<\/p>\n
Moody\u2019s will subsequently withdraw the ratings of BoI and Bank of India (London) \u201cfor its own business reasons\u201d.<\/p>\n
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