Bank's Rating Downgraded By Fitch

Fitch downgrades viability rating for PNB, BoB, Indian Bank

Affirms issuer default rating for SBI, IDBI, ICICI, Axis

Global rating agency Fitch has downgraded viability rating for three public sector banks -- Punjab National Bank, Bank of Baroda and Indian Bank -- from ‘bbb”- to “bb+“ on deteriorating asset quality and higher provisioning for stressed assets portfolio.

 

The revenue growth is slowing due to lower loan growth. The margins are squeezed margins due to high funding costs. This lead to building of pressures on internal capital generation, Fitch said. 

 

The rating agency also cut Chennai-based Indian Bank’s Long-Term (LT) Issuer Default Rating (IDR) to 'BB+' from 'BBB-'.

 

The agency has also affirmed the LT IDRs of State Bank of India, Canara Bank, IDBI Bank, ICICI Bank and Axis Bank at 'BBB-. Following the rating action, the Outlook on the IDRs for the nine banks is Stable.

 

It also affirmed the VRs of SBI, ICICI and Axis at 'bbb-', Canara at 'bb+' and IDBI at 'bb'.

 

The rating actions follows a review of the Indian banking sector against the backdrop of sharp deceleration in economic growth and Fitch's expectation of a further deterioration in asset quality. 

 

The economic slowdown is likely to be more protracted than initially expected due to the currency volatility in recent months and persistent high inflation, Fitch said a statement.

 

The asset quality at Indian banks (particularly state-owned ones) will worsen. 

It may result in a larger amount of stressed assets than initially forecast and the amount would peak only in FY15 (ending March 2015) rather than this current financial year.

 

The equity buffer of many public sector banks is looking increasingly stretched compared to their private peers, despite regular capital injections from the government. 

 

The stressed asset book (gross non performing loans plus restructured loans) of Indian banks stood at 10% of loans at end of June 2013. The non-performing assets stood at 3.9% at end of June. 

 

The outlook for the agriculture sector has improved following good monsoons, which should provide some cushion to the expected decline in growth.

 

The stress tests show that most PSBs are more sensitive to a further deceleration in economic growth due to their greater exposure to the infrastructure and cyclical sectors as well as their greater proportion of foreign-currency lending. 

 

Private banks, though not unaffected, have showed superior performance, with earnings and capital buffers at levels significantly higher than state-owned ones.

http://www.business-standard.com/article/finance/fitch-downgrades-viability-rating-for-pnb-bob-indian-bank-113092300840_1.html