Privatising two PSBs: Ind-Ra warns of rating impact if govt cedes control


PTI, Mar 24, 2021, 3:13 PM IST

Mumbai: Privatisation of two public sector banks can impact their ratings as the government support to the two entities will disappear, India Ratings and Research said on Wednesday.

The rating agency said the budget proposal to privatise the as yet unidentified PSBs “could lead to material negative migration of the long-term issuer ratings (mapped to senior instruments such as infrastructure bonds) and the ratings on Tier 2 instruments of the identified banks”.

The impact will be more if the government chooses to privatise the weaker banks, which are yet to be consolidated, it added.

Factoring in timely intervention from the government and minimal probability of default, the agency said it has a rating floor of ”IND AA-” for senior instruments and Tier 2 instruments of banks, which are majority-owned by the government.

The agency explained that it establishes a long-term issuer rating and equates the rating on senior issuances like infrastructure bonds and Tier-2 sub-debt to it.

The long-term issuer rating is arrived at a higher support-driven rating, factoring in the extraordinary distress support and the standalone credit profile of the issuer, which may factor in the ordinary ongoing support, it added.

In the case of hybrid instruments like additional tier-1 bonds, the rating is based on the standalone profile that factors in ordinary support from the government for PSBs as terms of these instruments could, under certain circumstances, prevent the support for servicing these instruments, it said.

Ind-Ra’s rating of AT1 instruments for weaker government banks could be multiple notches below the long-term issuer rating, factoring in the inherent weakness of the institutions along with the discretionary nature of the security, which could impact its ability to service the instrument, the agency said.

The government has ceded majority in only one bank – when it sold 51 per cent in IDBI Bank Limited to Life Insurance Corporation of India, it noted.

“Once the banks to be privatised are identified, the agency as per its criteria may place the ratings on a rating watch. Based on clarity on the final contours of transacted, the rating agency would take appropriate rating calls,” it said.

Udayavani is now on Telegram. Click here to join our channel and stay updated with the latest news.

Top News

BCCI vs PCB spar on CT venue as Naqvi denies receiving any official note from Indian board

After Yogi’s ‘batenge, katenge’ slogan, PM pitches for unity with ‘Ek hai, toh safe hai’ message

“Coming soon.. 2025”: KL Rahul and Athiya Shetty announce first pregnancy

Mangaluru: Unauthorized bus stops at signals fuel traffic woes and safety concerns

SC notice to Karnataka, DK Shivakumar on CBI plea against withdrawal of consent by state govt

Will remain active in politics till my last breath: JD(S) patriarch & ex-PM Deve Gowda

BJP calls Congress govt ‘laughing stock’ as ‘samosa politics’ heats up in Himachal

Related Articles More

NSE, BSE to be closed on Nov 20 for Maharashtra assembly polls

Sensex, Nifty fall for 2nd day on FII selling; RIL, ICICI Bank major drag

Sensex, Nifty fall over 1 pc, snap two-day rally ahead of US Fed interest rate decision

SC orders liquidation of grounded air carrier Jet Airways’ assets

Home-cooked meals become dearer in October on costlier vegetables

MUST WATCH

Gho Pooja in Deepavali Festival

Melukote Deepavali

Ganapathi Co-operative Society Ltd

Udayavani Chinnara Banna 2024

Annapoorna Aahar | Food Places In Mysore


Latest Additions

BCCI vs PCB spar on CT venue as Naqvi denies receiving any official note from Indian board

Use Carnatic music to promote Kannada language: Nirmala Sitharaman

Udupi: Car collides with bike; Rider injured

UP women’s body proposes men shouldn’t tailor women’s clothes or cut their hair

NSE, BSE to be closed on Nov 20 for Maharashtra assembly polls

Thanks for visiting Udayavani

You seem to have an Ad Blocker on.
To continue reading, please turn it off or whitelist Udayavani.