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

Press Trust of India  |  New Delhi 

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

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

"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 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, said.

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

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

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.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, June 13 2018. 17:30 IST