Ratings agency CRISIL has revised ratings on Allahabad Bank's tier II bonds on prospects of further deterioration in the asset quality and pressure on bottomline.
It revised ratings for tier II bonds from "AA+" to "AA". Rating agency has assigned "A" rating to the bank's Rs 1,000 crore for Tier I bond issue .
The bank's asset quality will remain under pressure over the next few quarters, because of the asset quality review exercise. This will result in increased pressure on the bank's already weak profitability, CRISIL said in statement.
The ratings action reflects higher-than-expected deterioration in Allahabad Bank's asset quality and profitability during the first nine months of 2015-16.
Its gross non-performing advances increased to 6.4% in December 2015 from 5.5% in March 31, 2015. Thr rise in GNPAs was primarily due to slippage of relatively large exposures in the large corporate and mid-corporate segments.
It posted net loss of Rs 160 crore for April-December 2015.
The ratings, nevertheless, continue to factor in belief that Allahabad Bank will continue to receive support from its majority owner, the Government of India (GoI). This support is assumed both on an ongoing basis and in the event of distress.
Allahabad Bank's asset quality, profitability, and capital coverage for unprovided weak assets will remain under significant pressure. This is due to the expectation of continued increase in the bank's gross non-performing assets (NPAs) over the next few quarters.
Bank's libility to set aside money for bad loans may go up and this may result in significant losses over the next few quarters, as seen in third quarter ended December 2015, CRISIL said.