PNB and BoB shares remain weak after Fitch downgrade

MUMBAI: Shares of Punjab National Bank and Bank of Baroda were witnessing profit booking after global rating agency Fitch on Monday downgraded viability ratings of the duo by one notch to 'bb+' from 'bbb-' while retaining their long-term issuer default ratings at 'bbb-'.

At 10:10 a.m.; Punjab National Bank was at Rs 482.75, down 0.27 per cent, on the BSE. It touched a high of Rs 484 and a low of Rs 466.20 in trade today.

Bank of Baroda was at Rs 507.70, down 0.72 per cent, on the BSE. It touched a high of Rs 509.60 and a low of Rs 494.10 in trade today.

According to Saswata Guha, Director-Financial Institutions, Fitch Ratings, the deterioration in the Indian banking sector and particularly in public sector banks has been continuing for sometime.

"We have been raising our concerns to that effect. However we must understand that the recent rating action to an extent builds in the expectation that our initial estimates of the system NPLs are peaking somewhere," Guha said in an interview to ET Now.

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.

"BOB is in a situation where the numbers look slightly better than some of the similar rated peers in its group. However, the buffer available to Baroda is likely to diminish over the course of the year," Guha said.

The Fitch rating on to PNB said that the bank’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.

"PNB at the moment is a bank which has the highest level of stressed assets touching close to 15 per cent. Our expectation is that this number is likely to go even higher. Its equity position looks particularly weak to us," he added.