Fitch downgrades ratings for Axis Bank and ICICI Bank to BB+ from BBB-

Global rating agency Fitch Ratings has downgraded ICICI Bank and Axis Bank’s Long-Term Issuer Default Rating (IDR) from “BBB-“ to “BB+” and Viability Rating from “bbb-“ to “bb+”. The Outlook on the IDR is Stable.

The rating action in case of two Indian private banks comes after Fitch lowered its midpoint for India's operating environment to 'bb+' from 'bbb-'.  

Before downgrading rating for India’s operating environment, Fitch conducted review of the banking sector's performance in the last three years, the regulatory framework, and the outlook in the near term.

Last week Fitch had affirmed the 'BBB-' Long-Term IDRs of the six Indian public banks: State Bank of India, Bank of Baroda, Bank of Baroda (New Zealand), Punjab National Bank, Canara Bank and Bank of India.

Fitch said it has compared India with other sovereign jurisdictions in Asia rated in the 'BBB' category - such as in the key metrics of Gross Domestic Product per capita and the ease-of-doing-business ranking. The likely below-average performance of the sector over the next two years is in spite of our expectations of high economic growth and improving business prospects in India, rating agency added.

The banks - which still remain the biggest credit intermediaries - are positioned to leverage this growth opportunity. They would be in position to exploit opportunity provided their damaged balance sheets are remediated sustainably with fresh equity that encourages the banks to support growth in a meaningful way.

The performance of Indian banks should have largely bottomed out, but the sector is still struggling with poor asset quality and weak core capitalization, it said.