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Fitch affirms PNB’s IDR at BBB-; removes VR from rating watch negative

Fitch affirms PNB’s IDR at BBB-; removes VR from rating watch negative

Mumbai/Singapore, November 27: Fitch ratings on Tuesday affirmed India-based Punjab National Bank's long-term Issuer Default Rating (IDR) at 'BBB' and its Viability Rating (VR) at 'b' while removing it from Rating Watch Negative. The outlook on the IDR is stable, a company statement confirmed.

“Removal of the VR from Rating Watch Negative is based on our view that further downside to the VR is less than we had previously assessed, as we believe the non-performing loan (NPL) ratio has peaked. However, profitability remains under pressure - we believe the bank may report another loss in the financial year ending March 2019 (FY19) - but the downside risk beyond then has eased. Core capitalisation also remains under pressure in light of the challenges of returning to profitability and delays in executing some capital raising initiatives,” the statement said.

The VR reflects PNB's weak intrinsic risk profile, which is evident from its vulnerable core capitalisation and persistent earning pressure.

PNB took a major hit following revelation of $2.2 billion fraudulent transaction in the bank allegedly led by diamantaire Nirav Modi and his uncle Mehul Choksi.

The Fitch report said: “The state injected fresh equity of Rs 82.5 billion in 1H19 ($1.2 billion; 20 per cent of FY18 equity) as part of PNB's recapitalisation plan, but overall core capitalisation remains weak. The bank's common equity Tier 1 ratio of 6.5 per cent follows 1HFY19 financial losses (operating profit/risk-weighted assets: -4.1 per cent) that wiped out nearly 66 per cent of incremental equity.”