Privatisation of 2 PSBs will impact their rating: India Ratings and Research

Mumbai: Privatisation of two public sector banks can impact their ratings as the government support to the two entities will disappear, India Ratings and Research (Ind-Ra) said on Wednesday.

The rating agency said the budget proposal to privatise the as yet unidentified PSBs "could lead to material negative migration of the long-term issuer ratings (mapped to senior instruments such as infrastructure bonds) and the ratings on Tier 2 instruments of the identified banks". The impact will be more if the government chooses to privatise the weaker banks, which are yet to be consolidated, it added.

Factoring in timely intervention from the government and minimal probability of default, the agency said it has a rating floor of 'IND AA-' for senior instruments and Tier 2 instruments of banks, which are majority-owned by the government. The agency explained that it establishes a long-term issuer rating and equates the rating on senior issuances like infrastructure bonds and Tier-2 sub-debt to it.

The long-term issuer rating is arrived at a higher support-driven rating, factoring in the extraordinary distress support and the standalone credit profile of the issuer, which may factor in the ordinary ongoing support, it added.