The bank is among many government-owned lenders that have come under substantial stress in recent quarters due to loan defaults by big borrowers.
Many private companies in India are defaulting on their bank loans, putting India’s government-owned lenders under the lens for indiscriminate and imprudent lending practices.
The banks in turn have been forced make huge allocations towards provisions for bad debt in recent quarters, and non-performing assets are now in double digits for some of these banks.
Central Bank had initially informed investors about the rating downgrade, but was asked to specify the reason for the downgrade by the exchanges.
“The rating downgrade factors the continuing deterioration in asset quality resulting in a high percentage of impaired assets, poor financial results for the past three quarters up to Q1FY17 wherein the bank had to make large provision towards NPAs, and their effect on capital adequacy ratio,” it said in its update today.
According to custom, when government-owned banks run up huge losses due to bad debt, tax payer money is used to compensate them in the form of ‘capital infusion’ by the government.