Shares of public sector banks, led by IOB, tumbled by up to 9 per cent on Wednesday after S&P said capital requirements of PSU lenders for provisioning of bad loans are likely to shoot up, exposing them to possible downgrades.
Indian Overseas Bank tanked 9.24 per cent to Rs 21.60 on BSE after S&P put the lender on ‘CreditWatch’ with negative implications.
Syndicate Bank nosedived 4.35 per cent, Punjab National Bank fell 4.27 per cent, IDBI Bank shed 3.63 per cent and SBI tanked 3.19 per cent.
Capital requirements of PSU banks for provisioning of bad loans are likely to shoot up exposing them to possible downgrades, S&P said yesterday as it trimmed outlook on Bank of India to ‘negative’ from ‘stable’.
It also put Indian Overseas Bank on ‘CreditWatch’ with negative implications.
Standard & Poor’s Ratings Services said the PSU lenders are in a weaker position on the capitalisation front than their private sector peers and may find it difficult to raise capital given their weak performance.
“Any sharp deterioration in asset quality could further weaken banks’ credit profiles,” S&P said in a report.
As regards IOB, it said a ‘CreditWatch’ with negative implication stems from S&P’s expectation that mounting losses would strain the state-run lender’s capital base.
The US-based agency has retained ‘negative’ outlook on the ratings of Syndicate Bank.
Hit hard by mounting bad loans, many leading state-owned banks reported their highest ever quarterly losses totalling over Rs 12,000 crore, while banking majors like SBI and PNB witnessed sharp erosion in profits.