S&P Global Ratings revised its outlook on India's Syndicate Bank Ltd. and Indian Bank and affirmed its ratings on the two banks, as well as those of Union Bank of India.
The rating agency said Sept. 11 that it raised the outlook on Syndicate Bank to positive from stable, and lowered the outlook on Indian Bank to negative from stable. At the same time, it affirmed the long- and short-term issuer credit ratings of Syndicate Bank at BB+ and B, respectively. Indian Bank's long- and short-term issuer credit ratings were affirmed at BBB- and A-3, respectively, while the same ratings of Union Bank of India were affirmed at BB+ and B, with a stable outlook.
The ratings actions follow the Indian government's Aug. 30 announcements to merge 10 state-owned banks into four and to infuse capital into the acquiring banks.
Ratings said it believes the rationale for the proposed mergers, capital infusion and tweaks to the powers of public sector banks' boards are credit positive at a system level. The impact, however, varies depending on the current ratings of the individual banks and the size and performance of the amalgamated entities. It added that the merger process will take up the bulk of management's bandwidth over the next 12 to 18 months, which could affect growth and profitability in the interim.
The positive outlook on Syndicate Bank reflects Ratings' view that there is a one-third probability that the combined entity's business profile after the merger could benefit from its enhanced franchise and size, and improvement in profitability in the next 18 to 24 months, without any material deterioration in its financial profile.
The rating agency said the negative outlook on Indian Bank reflects its view that there is a one-in-three chance of a downgrade by one notch over the next 18 to 24 months. The rating agency said it believes the bank's planned merger with the weaker Allahabad Bank will potentially undermine the former's asset quality and capitalization given the latter's high nonperforming loans and lower common equity Tier 1 ratio.
Meanwhile, the stable outlook on Union Bank of India reflects Ratings' view that the lender's financial profile post merger will be similar to the current profile.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.
