The rating company however reaffirmed the bond ratings at “A”.
The outlook was revised downwards due to “the anticipated sustained pressure on asset quality, driven by stress in the microfinance segment, which has adversely impacted the company’s profitability, resulting in losses in Q2FY25 and Q3FY25,” CARE said.
It added that the outlook may be revised to ‘stable’ if the company successfully raises substantial equity.
“The continued high slippage is likely to lead to elevated provisioning requirements. CARE Ratings will continue to closely monitor the impact of this
stress on the bank’s performance,” it said.
The bank’s gross non-performing assets ratio deteriorated to 6.96% at the end of December 2024 from 4.76% nine months prior to that. Net NPA rose to 2.97% from 2.26% over the same period. The lender’s gross stressed assets as a percentage of total advances rose to 7.03% as on December 31, 2024, from 4.84% as on March 31, 2024.
“Given the ongoing stress in the microfinance segment, slippages are expected to remain elevated in the near term, posing continued pressure on the bank’s profitability,” the rating company said. The bank suffered net losses of Rs 211 crore and Rs 190 crore in the third and second quarter respectively.
The bank’s pre-provision operating profit also declined to Rs 127 crore in the third quarter as compared with Rs 143 crore in the second quarter and Rs 254 crore in the first quarter.
“Going forward, trend in PPOP would be a key rating monitorable,” CARE said.
Despite the losses, the bank’s capital adequacy stood at 22.7%, comfortably above regulatory requirements, with the tier-1 capital ratio being at 18.68%.
The rating company said that the bank’s endeavour to expand the gold loan portfolio, which contributed to a reduction in risk-weighted assets, helped in maintaining robust capital adequacy.
