S&P Maintains 'Negative' Outlook for Syndicate Bank

New Delhi: Global rating agency Standard and Poor's warned on Friday that it could downgrade rating of crisis-ridden Syndicate Bank if its asset quality deteriorates. It has issued a similar warning for Indian Overseas Bank (IOB).

While the agency has maintained its 'negative' outlook on these two banks, it raised rating outlooks on 11 Indian banks and financial institutions to 'stable' from 'negative'. These include Bank of India, HDFC Bank, ICICI Bank, IDBI Bank, Indian Bank, IDFC, Kotak Mahindra Bank, Kotak Mahindra Prime, State Bank of India and Union Bank of India.

"The negative rating outlooks on Syndicate and IOB reflect a possible weakening in these banks' asset quality and capitalisation," the agency said.

S&P said it could downgrade Syndicate Bank if its asset quality deteriorates to below industry average levels or if the pre-diversification risk-adjusted capital (RAC) ratio falls below 5 per cent, which may happen if the bank grows aggressively and is unable to support growth with sufficient capital infusion.

However, it added, "We could revise the outlook to stable if Syndicate can sustain its asset quality in line with industry levels."

The ratings on Syndicate continue to reflect the 'very high' likelihood of government support for the bank and the bank's average domestic business franchise and satisfactory funding and liquidity position.

Syndicate's low earnings diversity and moderate capitalisation temper the ratings.

In August, Syndicate Bank chairman and managing director (CMD) S K Jain was arrested for allegedly receiving a bribe of Rs 50 lakh to enhance credit limits of Bhushan Steel and Prakash Industries. His service was terminated.

Referring to IOB, the agency said it could downgrade IOB if the lender is unable to raise sufficient capital to support growth, such that its RAC ratio dips below 5 per cent.