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NEW DELHI: Global rating agency Moody's Investors Service on Monday downgraded the local and foreign currency deposit rating of Punjab National Bank (PNB) to junk.
With this, the rating has been slashed to Ba1/NP from Baa3/P-3.
Also, it has downgraded the bank's baseline credit assessment (BCA) and Adjusted BCA to b1 from ba3.
The rating outlook has been cited stable.
The state-owned lender last week reported its highest ever quarterly loss of Rs 13,416.9 crore in January-March compared with a net profit of Rs 261.9 crore in the year-ago period.
The bank's weak earnings profile — as seen by its large stock of non-performing loans (NPLs) and the associated credit costs — will limit its ability to absorb the impact of the fraudulent transactions over the next 12-18 months, Moody's said in its press release on Monday.
"Furthermore, provisions relating to the fraudulent exposures will largely offset the benefit the bank will receive from the Indian government's (Baa2 stable) capital infusion plan," it added.Punjab National Bank has been in the news ever since the lender disclosed unearthing around Rs 11,400 crore worth of fraudulent transactions in February at one of its Mumbai branches.
Later, the amount of fraud was revised to Rs 14,000 crore.
PNB was allegedly defrauded by the diamond trader Nirav Modi and his associates by fraudulent use of letters of undertakings (LoUs) and foreign letters of credit (LoC) in connivance with certain bank officials.
The fraudulent transactions represented 320 basis points of the bank's risk-weighted assets as of March 2018, Moody's said.
In 2017-18, after providing for 50 per cent of the fraudulent exposure, the bank reported a common equity tier 1 (CET1) ratio of 5.95 per cent against 8.05 per cent in October-December 2017.
The bank will provide for the remaining 50 per cent exposure in the next few quarters.
Moody's believes PNB's BCA could be upgraded if the capital infusion received from the government, and or any actions taken by the management, improve the bank's capitalisation to a level that is in line with other similarly-rated public sector banks.
At the time of writing this report, the stock was at Rs 76.35 on the BSE, up 2.14 per cent.
