Fitch retains Ratings of 9 Indian Banks, but warns of pressure on asset quality

Fitch Ratings on 03 September 2014 has affirmed the ratings on nine Indian banks. The Long-Term Issuer Default Ratings (IDR) on State Bank of India (SBI), Bank of Baroda, Bank of Baroda New Zealand (BOB NZ), Punjab National Bank, Canara Bank, IDBI Bank, ICICI Bank and Axis Bank have been affirmed at 'BBB-' while Indian Bank has been affirmed at 'BB+'. The Outlook on the IDRs is Stable.

The Indian banking sector faces a challenging economic environment; although the new government's clear electoral mandate gives it the ability to pursue far-reaching economic reforms. Uncertainties and risks remain regarding implementation of key policies necessary to achieve the government's growth and fiscal deficit targets. Fitch has increased its real GDP growth forecast for the financial year ending March 2016 (FY16) to 6.5% from 6.0% and projects real GDP growth to pick up to 5.5% in FY15 from 4.7% in FY14.

Asset quality at state-owned banks remains under pressure, while certain large banks' non-performing loans (NPLs) and restructured loans have grown at a slower pace in the recent two quarters. Early signs of deleveraging in the corporate sector are encouraging. However, a recent court ruling that the government's allocations of coal assets in 1993-2009 were illegal has cast a shadow on asset quality. However, the impact of the ruling may be less onerous than expected if productive assets are allowed to continue operating without disruption.

Fitch expects the pressure on asset quality at the rated banks to persist for another couple of quarters. The banks, particularly the state-owned ones, will increasingly focus on raising capital to meet more stringent capital requirements under the Basel III regulatory framework, which will be progressively implemented in India.

(Source - Fitch Ratings)