Fitch downgrades viability rating of SBI, BoB on poor asset quality

Fitch Ratings today downgraded the Viability Rating (VR) of State Bank of India and Bank of Baroda by one-notch, reflecting weak risk profile due to negative effect of poor asset quality.

Fitch, which has a negative sector outlook on Indian banks, however, affirmed the 'BBB' Long-Term Issuer Default Ratings (IDRs) of SBI, BoB, Canara Bank and Bank of India (BoI) with a stable outlook.

"Fitch has downgraded the Viability Rating (VR) of SBI and BoB by one-notch to 'bb+' and 'bb', respectively, reflecting their weakened intrinsic risk profile due to the negative effect of persistently poor asset quality and earnings on their capital position. The banks' core capital buffers also appear more vulnerable to moderate shocks," the ratings agency said in a statement.

As many as 19 of India's 21 state banks reported losses in the last fiscal, cumulatively wiping out almost all of the government's USD 13 billion capital injections during the year, Fitch said.

It said the one-notch downgrade of SBI's VR to 'bb+' from 'bbb-' reflects the bank's vulnerable core capitalisation from its prolonged asset quality problems and weak earnings.

"We believe more fresh capital is needed for growth and to manage heightened balance-sheet stress," Fitch said.

SBI's non performing loan ratio increased further to 11 per cent and have increased risk for core capitalisation, it added.

With regard to BoB it said the one-notch downgrade of BoB's VR to 'bb' from 'bb+' reflects increasing pressure on its capital position from extended financial weakness in terms of NPLs and earnings.

Its NPL ( non-performing loan) ratio jumped to 12.3 per cent. The bank's portfolio of watch-list loans is around 2% and can add to asset-quality pressure if NPL resolution slows, Fitch said.