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Rating upgrades of public sector banks and their subsidiaries

Rating agency Crisil has upgraded on 17th September 2004, the debt programmes of BOB Housing Finance Ltd, Canbank Factors Ltd, Cent Bank Home Finance Ltd and PNB Housing Finance Ltd . These upgrades are based on the recent upgrades of their parent banks and reassessment of their credit profile.

Crisil has a week earlier, upgraded the bond ratings of four public sector banks - Bank of Baroda, Canara Bank, Indian Overseas Bank and Syndicate Bank. The outlook on all the ratings is stable, despite hardening interest rates that could result in decrease in reported profits in FY 2004-05. The upgrade reflects a reassessment of the Government support available to public sector banks.

According to Crisil, in the light of recent developments in the banking sector, there is greater evidence pointing to the sufficiency and timeliness of support from the Government.

Looking ahead, with indications of trends towards consolidation amongst public sector banks, Crisil sees increased comfort on likely Government support, as banks grow even larger and potential fallouts of distress increase.

While this benefits the credit profiles of all public sector banks, the impact on these four is sufficiently positive to merit an upgrade by one notch, the release said.

Even distressed private sector banks have been, at times, rescued by the Government to protect depositors and creditors. Crisil believes that the Government's response would be stronger in the case of public sector banks, which typically have significant retail depositor bases and large work forces.

Even public sector banks that had negative net worth have witnessed high deposit growth rates, indicating that the depositors see these as sovereign entities.

The Government's support has been adequately demonstrated by repeated instances of large recapitalisation of public sector banks - a total of about Rs 23,000 crorre in the last 13 years.

The fact that the Government has ensured that no public sector bank has even approached a liquidity crisis, continues to reinforce the public's perception of sovereign backing.

The rating upgrades include Rs 600-crore bonds programme of Bank of Baroda and Rs 450 crore of Canara Bank (both from AA+ to AAA), three bond issues of Indian Overseas Bank aggregating Rs 450 crore and Rs 125 crore of Syndicate Bank (both from AA to AA+).

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