Fitch Upgrades 5 Indian Banks' Support Ratings on Government Equity Infusion

July 13, 2010: Fitch Ratings has today upgraded the Support ratings of five Indian government-owned banks, Corporation Bank, Indian Bank, Andhra Bank, Vijaya Bank and Dena Bank, to '3' from '4'. Additional rating actions affecting Dena Bank and the Oriental Bank of Commerce are detailed at the end of this comment. The Support Rating of Vijaya Bank has been removed from Rating Watch Positive.

The upgrades reflect the Indian government's continued strong propensity and commitment towards maintaining healthy financial profiles for government-owned banks, and the government's improved ability to do this based on better prospects for its fiscal position.



The Support ratings of some other Fitch-rated government banks are already at '2', the highest level for Indian banks, or '3', based on Fitch's view of their relative importance to India's financial system. The minimum Support Rating Floor for a government bank is now 'BB' on Fitch's international rating scale (sovereign rating: 'BBB-'/Stable) and 'AA-(ind)' on the national rating scale.

The government's current target is to ensure a minimum Tier 1 ratio of 8% for government-owned banks by end-March 2011 through an infusion of INR165bn in common equity or hybrids. The government has identified five banks for targetting: IDBI Bank, Central Bank of India, Bank of Maharashtra, UCO Bank and Union Bank of India. Fitch notes that government support has been proactive, as opposed to bailing out banks in distress, which strengthens the agency's expectation that future support will be forthcoming.

Fitch also draws comfort from the government's prospective fiscal position based on the robust domestic economic outlook, which helps increase its ability to provide timely support to state-owned banks. Fitch recently revised India's FY11 growth forecast to 8.5% from 7%, and revised the Outlook on India's Long-term local currency Issuer Default Rating to Stable from Negative in June (for further information, please see the 14 June 2010 comment, entitled "Fitch Revises India's Local Currency Outlook to Stable; Affirms at 'BBB-'", at www.fitchratings.com).

An improvement in the state's fiscal condition, if maintained, could result in the Support ratings of a few more banks being upgraded to '2', implying a Support Rating Floor of 'BBB-' on Fitch's international rating scale. This would likely include some large government banks and large private banks with growing systemic importance.

Indian Govt approves Infusion of Capital Worth Rs.6211 Crore in Five Public Sector Banks.... Read More

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