Moody’s Maintains Stable Outlook on Three Indian PSU Banks’ Ratings

Moody’s Ratings (Moody’s) on Friday affirmed the Baa3 ratings on three Indian public sector banks — Bank of Baroda (BOB), Canara Bank, and Punjab National Bank (PNB). The rating agency maintained stable outlooks on the long-term ratings of all three banks, citing improved credit metrics, strong profitability, and adequate liquidity buffers. Moody’s believes that India’s strong operating environment will continue to support their credit fundamentals over the next 12-18 months.

Improved Credit Metrics

Moody’s highlighted that the banks’ nonperforming loan (NPL) ratios have declined significantly. As of March 31, 2024, BOB’s NPL ratio decreased to 2.9% from 3.8%, Canara Bank’s to 4.2% from 5.4%, and PNB’s to 5.7% from 8.7%. This improvement was driven by lower bad loans, stronger recoveries, and higher write-offs.

Profitability and Capitalization

The rating agency noted that improving profitability will support the banks’ capitalization despite strong loan growth and higher risk weight requirements for unsecured lending. However, Moody’s also cautioned that an increase in funding costs could moderate profitability over the next 12-18 months.

Liquidity and Funding

Moody’s emphasized the banks’ strong liquidity buffers and low reliance on market funds as key strengths supporting their funding profiles. Despite the rapid growth of unsecured retail loans posing potential risks to asset quality, these loans represent a small share of the banks’ total loan portfolios. Additionally, adequate loan loss reserves have been built to buffer against future credit losses.

Bank Profiles

Bank of Baroda (BOB)

Headquartered in Mumbai, reported consolidated assets of Rs 16.5 trillion (USD 197.8 billion) as of March 31, 2024.

Canara Bank

Headquartered in Bangalore, reported consolidated assets of Rs 15.4 trillion (USD 184.6 billion) as of March 31, 2024.

Punjab National Bank (PNB)

Headquartered in New Delhi, reported consolidated assets of Rs 16.0 trillion (USD 191.8 billion) as of March 31, 2024.