Fitch downgrades Punjab National Bank and Bank of Baroda viability ratings

MUMBAI: Global rating agency Fitch today dowgraded viability ratings of the state-run Punjab National Bank and Bank of Baroda by one notch to 'bb+' from 'bbb-' while retaining their long-term issuer default ratings at 'bbb-'.

On BoB, the Fitch report said, 50 per cent of its loan book (both onshore and offshore loans) is foreign-currency denominated, which could be a greater source of instability to its credit profile given the recent currency volatility.

The viability rating is an indicator of a bank's credit-worthiness.

Downgrading the second largest public sector lender, Fitch said: "BoB's stressed assets are equivalent to 85 per cent of equity. While this is a better buffer than PNB's, this is unlikely to be maintained given the level of deterioration that has taken place."

"The downgrade to PNB's viability ratings reflects its already-weak equity position and the expected further weakening of its asset quality profile from current levels, which means the state-run lender would take longer to bounce back even under a cyclical recovery," Fitch said in a release.

PNB's stressed assets stood close to 15 per cent of its loans at FY13 as against 11 per cent in FY12, the highest among rated state-owned banks it rates, it said.

"Notwithstanding PNBs funding and profitability strength, we maintain a negative bias on the bank's viability ratings," the rating agency said.

BoB's gross NPLs have risen 84 per cent in April-June 2013 year-on-year, the report noted.

Fitch has downgraded Indian Bank's Long-Term (LT) Issuer Default Rating (IDR) to 'BB+' from 'BBB-' and its Viability Rating (VR) to 'bb+' from 'bbb-'.

The agency has also affirmed the long-term issuer default ratings of State Bank of India, Canara Bank, IDBI Bank, BoB New Zealand, ICICI Bank and Axis Bank at 'bbb-', and the viability ratings of SBI, ICICI Bank and Axis Bank at 'bbb-', Canara at 'bb+' and IDBI at 'bb'.