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Fitch Upgrades Support Ratings of Several Indian Banks & IDBI Bank’s IDR Rating
Fitch Ratings on 15 March, 2007 upgraded the Support ratings of several Indian banks as follows:
ICICI Bank, Punjab National Bank, Canara Bank, Bank of Baroda, Bank of India, Union Bank of India and IDBI Ltd. (“IDBI”, previously Industrial Development Bank of India): Support ratings upgraded to ‘2’ from ‘3’.
HDFC Bank, UCO Bank, Indian Overseas Bank, Oriental Bank of Commerce and Allahabad Bank: Support ratings upgraded to ‘3’ from ‘4’.
At the same time, the agency upgraded IDBI’s Long-term foreign currency Issuer Default rating (“IDR”) to ‘BBB-’ (BBB minus) from ‘BB+’ and IDBI’s Individual rating to ‘C/D’ from ‘D/E’. All other ratings of IDBI and the banks listed above are affirmed.
The rating actions reflect the Indian government’s improved ability to provide timely support to systemically important banks as reflected in the government’s Long-term foreign currency IDR of ‘BBB-’ (BBB minus). In September 2006, Fitch had upgraded the Support ratings of State Bank of India (India’s largest bank with nearly 18% market share in loans and deposits) and EXIM Bank of India (a policy bank engaged in promoting the country’s exports) to ‘2’ from ‘3’ after the agency upgraded India’s sovereign rating to ‘BBB-’ (BBB minus) from ‘BB+’ in August 2006.
Fitch also notes that the Indian authorities have historically had a high propensity of supporting troubled banks either through direct recapitalisation or by way of merging them with healthy ones, although the government’s ability to do so was previously constrained by its non-investment grade rating. Together with improving financial condition of most banks over the past three to four years which decreases the risk of bank failures and in turn the contingent liability on the government, Fitch believes that it can now permit a slightly larger number of Indian banks with Support ratings of ‘2’ and/or ‘3’. The banks which have been upgraded to a Support rating of ‘2’ are mostly ones with a pan-India presence as well as a market share of over 3% of system assets. The banks which have been upgraded to ‘3’ typically have a market share of between 2% and 3% of system assets.
The upgrade of IDBI’s Long-term foreign currency IDR reflects the expected support from the government, which indeed IDBI has enjoyed in the past and is likely to continue in future. The upgrade of IDBI’s Individual rating reflects its gradually improving standalone financial condition.
( This is the press release of Fitch Ratings)
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