Fitch upgrades outlook of 10 Indian financial institutions to stable

International rating agency Fitch on Friday upgraded the outlook of 10 Indian financial institutions (FI), including foreign subsidiary of Bank of Baroda. The outlook has been upgraded to stable from negative while affirming the ratings at BBB-, Fitch said in a statement. The institutions which have been upgraded include five public sector banks, an overseas subsidiary of Bank of Baroda, two private banks and two wholly government owned FIs.

Ratings of State Bank of India (SBI), Bank of Baroda (BoB), Bank of Baroda (New Zealand) Limited, Punjab National Bank (PNB), Canara Bank and IDBI Banks have been upgraded. In the private sector, ratings of ICICI Bank and Axis Bank have been upgraded; the other two institutes are Exim Bank and Housing and Urban Development Corporation (Hudco).

The change in the outlook on the ratings follows the revision of the outlook on India's ratings to stable from negative, the Fitch statement said. The revision in outlook for SBI, ICICI, BoB, PNB, Canara, IDBI, Exim and Hudco, in line with the sovereign rating change, is primarily driven by a strong propensity and ability to support the banks if needed, the statement added.

The viability ratings (VR) of ICICI and Axis Bank, which are at 'bbb-' - the same level as the sovereign's ratings - also support the outlook revision, due to their steadily improving standalone credit profile despite difficult market conditions, the statement said.

Fitch also said it expects non-performing assets and restructured assets to continue to rise this financial year. Public sector banks stressed assets were 11.59 per cent of the total at the end of 2012, against the sector average of 9.61 per cent, it said.

According to the agency, the asset quality of certain government banks like PNB witnessed a sharp deterioration, which has put their VR under pressure. Further deterioration from the current levels will add additional pressure which may lead to a downgrade of their VR, it warned.