The rating downgrade applies to various borrowing programmes. OBC has sold Rs 6,700 crore worth of bonds to domestic fund houses and institutions, which would be now sitting mark-to-market losses amid fear of missing repayments. Normally, bond yields shoot up pulling prices down after rating downgrade.
“The ratings downgrade and negative outlook on the ratings are driven by ICRA’s weak outlook on the bank’s asset quality, profitability as well as the increasing capital requirements under Basel III,” the company said in a release.
The bank’s gross bad loans increased nearly 14% to Rs 22,859 crore in the financial year 2016-17.
The negative outlook on the ratings continues to reflect the weak outlook on the bank’s asset quality and profitability.
The limited headroom available to raise capital from non-government sources given the government ownership of 58.38% stake as on March 31 this year, it said.
Out of five series of bonds ICRA has withdrawn rating only in issuance of Rs 500 crore while the rest faced downgrades.
But, a majority sovereign ownership is seen as a key positive for the bank, which could well obtain support from the authorities to repay interest on bonds.
Coupon payments, which are non-cumulative, are discretionary and the bank has the full discretion at all time to cancel coupon payments, said ICRA.
Last financial year OBC has reported a loss of Rs. 1,094 crore compared to a net profit of Rs 156 crore in FY2016.
Earlier in the month, government-owned IDBI Bank faced the same downgrade ratings.