Fitch, Moody's place PNB under review for downgrade

Global rating companies Moody’s and Fitch have raised doubts on the Punjab National Bank’s creditworthiness citing the country’s biggest banking fraud. Both of them have placed the bank under rating watch, a kind of scrutiny before a possible rating downgrade or a cut in outlook.

Moody's Investors Service has put under review for downgrade PNB’s local and foreign currency deposit rating of Baa3/P-3 and foreign currency issuer rating Baa3. “Likely financial impact of the fraudulent transactions is the key driver for the review for downgrade,” Moody’s said in a release on Tuesday.

“The primary driver for today's rating action is the risk of weakening of the bank's standalone credit profile, as a result of the discovery of a number of fraudulent transactions.”

Earlier on February 14 PNB had identified some fraudulent and unauthorized transactions amounting to Rs 11,400 crore. That triggered panic among investors with PNB shares sliding.

Fitch Ratings too has placed Punjab National Bank's Viability Rating of 'bb' on Rating Watch Negative (RWN), following the biggest heist of public money.

“Fitch will resolve the Rating Watch once more clarity emerges on the extent of control failures and the impact on PNB's financial position,” it said.

“The RWN reflects the possibility of a downgrade of PNB's Viability Rating following the detection of a large fraud in one of the bank's branches.”

In the past few days domestic rating companies including India Ratings and Crisil too came out with similar rating action. Indian Ratings even brought PNB Housing Finance, a subsidiary of the lender under negative rating watch.

With rating reviews going on, PNB bond yields too have risen pulling prices down in the secondary market. Investors of PNB bonds may now staring at mark-to-market losses amid fear of a rating downgrade.

Dealers said the average notional yields have already hardened 15-20 basis points after the elaborate web of deception defrauding the lender of Rs 11,400 crore became public. Yields may be on a rising path.

ET reported last week that institutional investors might have to contend with mark-to-market losses on more than Rs 4,500-crore worth of PNB debt securities if the expanding scope of an ongoing probe into India’s biggest banking fraud triggered a rating downgrade.