Credit rating agency Fitch Ratings Wednesday announced the revision of the Outlook on the 'BBB-' Long-Term (LT) Foreign Currency (FC) Issuer Default Rating (IDR) of 11 Indian financial institutions to negative from stable, while affirming the rating.
The financial institutions comprise of six government banks (including an international banking subsidiary of a government bank), two private banks, two wholly owned government institutions and one infrastructure finance
company, the rating agency said in a statement.
The institutions that are affected by the revision are: State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BOB), Bank of Baroda (New Zealand) Ltd (BOBNZ), Canara Bank (Canara), IDBI Bank Ltd (IDBI), ICICI Bank Ltd (ICICI), Axis Bank (Axis), Export-Import Bank of India (EXIM), Housing and Urban Development Corp Ltd (HUDCO) and Infrastructure Development Finance Co Ltd (IDFC).
The rating action follows Fitch's revision of the Outlook on India's LT Foreign- and Local-Currency IDRs to negative from stable Monday.
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.
Should the Sovereign Long-Term IDR be downgraded, the banks with Viability Ratings (VR) of 'bbb-' would also be affected given the previously mentioned linkages.
Fitch is also of the opinion that pressures are building generally on the stand-alone credit profile of these institutions which will negatively impact 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.
According to Fitch, there is some comfort from the banks' reasonable customer deposit base, established domestic franchises and adequate capitalisation.
"The non-banks, however, lack the funding advantage, which puts them more at risk during times of increased market volatility," Fitch said.
"In the agency's opinion, 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," the rating agency added.