CRISIL downgrades Central Bank of India's tier I& II bonds

Rating agency CRISIL has downgraded Central bank of India’s tier Ibonds and Tier II bonds to “AA” from “AA+” on expected weakening of credit profile on sustained deterioration in asset quality and earnings.

Mumbai-based public sector lender is witnessing a sharp and sustained deterioration in asset quality. Its gross non-performing assets (NPA) increased significantly to 6.0% as on June 30, 2013 from1.8% as on March 31, 2011.

The deterioration in the bank’s asset quality is also reflected in its higher-than-industry-average slippages at 5.6% (annualised) for the quarter ended June 30, 2013 (3.5% in 2012-13), CRISIL said in a statment

Rajeev Rishi, its chairman and managing director, told Business Standard the non-performing assets is a concern for bank. It is reflection of economic environment (read adverse effect of slowdown).

The economic turn-around can bring benefits especially when the stalled projects get-off the ground. The bank has stepped up efforts at recovery from NPA accounts. The recovery has been in excess of Rs 700 crore till now, he said.

CRISIL reaffirmed bank’s certificates of deposit programme at “A1+”.

The ratings continue to factor in the strong support that Central Bank is likely to receive from the Government of India (GoI), the bank’s sizeable scale of operations, and its adequate resource profile.

Furthermore, the bank had a large proportion of restructured standard assets of 13.2% as on June 30, 2013. The bank’s asset quality will remain weak over the medium term, given the challenging macroeconomic environment and the bank’s large exposure to vulnerable sectors such as infrastructure (particularly to power sector), construction, and iron and steel.

Central Bank also has a weak earnings profile, marked by low interest margins and high provisioning costs. The bank’s return on assets (RoA) ratio remains significantly lower than that of its peers at around 0.03% (annualised) for the quarter ended June 30, 2013 (0.4% in 2012-13).

The bank’s profitability will continue to be adversely impacted by an increase in provisioning costs because of the asset quality challenges. Additionally, the bank’s net interest margins are likely to remain under pressure over the next few quarters because of high borrowing costs, CRISIL said. Source: Business Standard

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