INSUBCONTINENT EXCLUSIVE:
Global rating agency Fitch on Wednesday
downgraded the viability ratings (VRs) of State Bank of India (SBI) and Bank of Baroda (BoB), but affirmed their 'BBB' long-term issuer
default ratings, along with that of Canara Bank and Bank of India (BoI)
The agency has also retained the stable outlook on these lenders
Fitch has downgraded the VRs of SBI and BoB by one-notch to 'BB+' and 'BB', respectively, citing "their weakened intrinsic risk profile due
to the negative effect of persistently poor asset quality and earnings on their capital position".Fitch, which has a negative sector outlook
on the domestic banks, however, said the new NPA framework has accelerated bad-loan recognition, and should improve the health over the long
term."However, heavy losses and capital erosion reinforce sour belief that sector core capitalisation will remain weak unless authorities
provide more capital than the budgeted $11 billion," it added.: PNB's Viability Rating Down, Says Credit Rating AgencyNineteen of the 21
state-run banks have reported losses in FY18, cumulatively wiping out almost all of the $13-billion capital injections during the year
Eleven of them reported common equity Tier 1 (CET1) ratios that fell short of the 8 per cent requirement for Basel III capitalmigration."We
expect internal capital generation to remain weak, although many state banks should be able to recover from losses in FY19
Credit cost, which rose to 4.3 per cent on average at state-owned banks from 2.5 per cent in FY17 are likely to moderate, but ageing
provisions, slippage from watchlist portfolios and the poor growth outlook limits the upside," the agency said.The long-term ratings of SBI,
BoB, Canara Bank and BoIare driven by their support ratings of '2' and support rating floors of 'BBB-', Fitch said, adding the support
ratings and support rating floors reflect its expectation that the banks are likely to receive extraordinary government support due to their
high systemic importance and the government ownership
On the VR downgrade of SBI, the agency said, "The one-notch downgrade to 'BB+' from 'BBB-' reflects the bank's vulnerable core
capitalisation from its prolonged asset quality problems and weak earnings."SBI's NPA ratio increased further to 11 per cent, while its net
NPL/core capital exceeded 50 per cent
Both ratios are better than most of public sector banks, but have increased risk for core capitalisation.On the VR downgrade of BoB, it said
the one-notch downgrade to 'BB' from 'BB+' reflects increasing pressure on its capital position from extended financial weakness in terms of
NPAs and earnings.BoB's CET1 ratio at 9.2 per cent is slightly better despite losses and is higher than that of most state-owned peers, but
its NPA ratio jumped to 12.3 per cent
Canara Bank's VR of BB reflects the 60 bps improvement in its CET1 ratio to 9.5 per cent in FY18, supported by fresh equity, over and above
that infused by the government
On BoI, which has a VR of 'B+', the report said this is at the lower end of large public-sector banks and reflects its weak financial
position, as evident from three years of consecutive losses and a significant jump in its gross NPAs16.6 per cent in FY18.(This story has
not been edited by TheIndianSubcontinent staff and is auto-generated from a syndicated feed.)
