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Fitch cuts rating outlook of SBI, ICICI, PNB to negative

Fitch said while banks continue to have reasonable customer deposit base, domestic franchises and adequate capital, the NBFCs lack the funding advantage, which puts them more at risk during times of increased market volatility

 

New Delhi: Ratings agency Fitch on Wednesday cut credit rating outlook of 11 financial entities including State Bank of India (SBI), ICICI Bank, Punjab National Bank (PNB) and Axis Bank to negative from stable. The action follows the revision earlier this week of India's outlook to negative, reports PTI.

"The outlook revision of the financial institutions reflects their close linkages with the sovereign by virtue of their high exposure to domestic counterparties and holdings of domestic sovereign debt," Fitch said in a statement.

Separately, Fitch said it is also of the opinion that pressures are building generally on the stand-alone credit profile of these institutions which will negatively impact viability ratings (VRs), given India's weakening economic and fiscal outlook, slowing business reforms and inflationary pressures that in turn could put further pressure on their future asset quality. VRs of banks with concentrated exposures to problematic sectors could be impacted more, it added.

The list of downgraded entities include six government banks (including an international banking subsidiary of a government bank), two private banks. These include Bank of Baroda, Bank of Baroda (New Zealand) Ltd (BOBNZ), Canara Bank, and IDBI Bank.

Besides two wholly owned government institutions -- Export-Import Bank of India (EXIM) and Housing and Urban Development Corp Ltd (HUDCO) have also been similarly downgraded. In addition, the outlook of IDFC Ltd and Indian Railway Finance Corp Ltd (IRFC) outlook has also become negative.

However, Fitch said the banks continue to have reasonable customer deposit base, domestic franchises and adequate capital.

The non-banking financial entities, meanwhile, lack the funding advantage, which puts them more at risk during times of increased market volatility, it said.
 
Fitch also said sovereign support for both the large banks and 'policy-type institutions' is expected to remain strong, with the former benefiting from their large share of system assets and deposits and the latter from their association with the government.

According to analysts, the cut in the rating outlook may raise the cost of overseas borrowings for such institutions.

Earlier this week, Fitch lowered India's credit rating outlook to negative, citing corruption, inadequate reforms, high inflation and slow growth.

India faces an "awkward combination" of slow growth and elevated inflation, Fitch had said, adding that the country "also faces structural challenges surrounding its investment climate in the form of corruption and inadequate economic reforms".

Standard and Poor's (S&P) had in April lowered India's rating outlook to negative from stable. It also warned on 11th June that the country may be the first in the BRIC grouping to falter and its sovereign credit rating may slip below investment grade.

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