New Delhi, September 4: Following the government’s big decision to merge 10 public sectors banks (PSB) into four, global ratings firm Moody’s Investors Service has taken rating actions on the five PSBs -- Canara Bank, Oriental Bank of Commerce (OBC), Punjab National Bank (PNB), Syndicate Bank and Union Bank of India (Union Bank) -- that will undergo mergers.

Moody's has affirmed the local and foreign currency deposit ratings of Canara Bank, OBC, Syndicate Bank and Union Bank at Baa3/P-3. Moody's has also affirmed their Baseline Credit Assessments (BCAs) and Adjusted BCAs at ba3.

Moody's has also affirmed the local and foreign currency deposit ratings of PNB at Ba1/NP, and affirmed the bank's BCA and Adjusted BCA at b1.

The outlooks on Canara Bank, OBC, Syndicate Bank and Union Bank are maintained at stable.

Moody's has changed the outlook on PNB to positive from stable.

On August 30, 2019, the Indian government announced four sets of mergers between 10 public sector banks.

The government has announced four mergers: OBC and United Bank of India with PNB, Syndicate Bank with Canara Bank, and Corporation Bank and Andhra Bank with Union Bank. The fourth merger is between two unrated banks, Indian Bank and Allahabad Bank. Moody's expects the mergers will be completed by April 1, 2020.

After these mergers, the number of PSB has come down to 12 from 27 PSBs last year.

After the announcements, PNB is merged with OBC and United bank of India, becoming the second-largest PSB with business size of Rs 17.94 lakh crore.

To give a fresh impetus to the ailing banks and economy she announced the merger of Canara Bank with Syndicate Bank. Following this merger, this merged entity will become a fourth largest PSB with the business of Rs 15.20 Lakh crore, third largest branch network in India with 10,342 branches.

Another big merger she announced today is of Union Bank, Andhra Bank and Corporation bank becoming fifth largest PSB with the business of Rs 14.59 lakh crore, fourth largest branch network in India with 9,609 branches.

After the merger of Indian Bank with Allahabad Bank it would become a seventh largest PSB with business of Rs 8.08 lakh crore.

Apart from mergers she also announced Rs 55,250 crore upfront capital for credit growth & regulatory compliance to support the economy. PNB will get Rs 16,000 crore; Union Bank Rs 11,700 crore; Canara Bank Rs 6,500 crore; Indian Overseas Bank Rs 3,800 crore; Central Bank of India Rs 3,300 crore; Bank of Baroda Rs 7,000 crore; Indian Bank Rs 2,500 crore and Uco Bank Rs 2,100 crore.

The ratings affirmations reflect Moody's expectation that the acquiring banks will receive sufficient capital injections to absorb potential write-downs, if any, arising from the merger. Post-merger, Moody's expects that the banks will be able to maintain a common equity tier 1 (CET1) ratio above the Basel III requirement of 8 per cent, which include the minimum CET1 ratio of 5.5 per cent and a capital conservation buffer of 2.5 per cent.

As a result, Moody's expects the financial profiles of Canara Bank and Union Bank will fundamentally remain unchanged following the merger, and that the financial profile of PNB will strengthen, when compared to their financial profiles on a standalone pre-merger basis.