Govt’s stake divestment to be credit negative for public sector banks: Icra



The proposed divestment of the Centre’s majority stake in certain will be credit negative for these lenders, ratings agency said on Thursday.


Citing recent reports which suggest a possible divestment of majority stake in few that were left out of the consolidation exercise announced last year, said that most of these PSBs have weak credit profile and their credit ratings are primarily supported by their sovereign ownership and a stable deposit base, which in turn is supported by their ownership.



“The existing ratings are also notched up from the standalone credit profile and going forward, the ratings on these PSBs would reflect their standalone credit profile depending on their new ownership of these banks,” it said in a statement.


Furthermore, expects the deposit franchise for these will be monitorable as these deposits could be highly sensitive to their ownership.


The ratings agency noted that the proposed divestment of these PSBs will require amendment to the Banking Companies (Acquisition And Transfer Of Undertakings) Act, 1970/1980, which mandates the Centre to hold no less than 51 per cent of the paid-up capital of these lenders.


Commenting on these developments, Karthik Srinivasan, Group Head – Financial Sector Ratings, ICRA said: “The financial profile of these PSBs is very weak and the standalone profiles of these could be low within investment grades rating given their weak asset quality, profitability, capital and solvency profile.”


“The liability profile for these will become a key monitorable in the immediate term.”


–IANS


rv/sn/vd

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)





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