Fitch Cuts viability rating for PNB, warns IDBI vulnerable to downgrade

Rating agency Fitch today downgraded Punjab National Bank's (PNB) Viability Rating by one notch to 'bb' on the growing risk to the bank's capital position from mounting stock of stressed assets. It warned IDBI Bank about vulnerability to a downgrade due to rise in the stressed asset ratio.

It affirmed the Long Term Issuer Default Rating (IDR) at "BBB-" for banks including State Bank of India (SBI), PNB, Canara Bank, IDBI Bank, ICICI Bank, Axis Bank, Bank of Baroda and its subsidiary in New Zealand. For Chennai-based India Bank IDR has been affirmed at "BB+". The outlook on IDRs is stable.

PNB's Viability Rating (VR) has been downgraded by one notch to 'bb' to reflect the growing risk to the bank's capital position from its mounting stock of stressed assets, which has risen at a faster rate than its capital replenishment. Delhi-based public sector lender's capital buffers are unlikely to improve significantly even though the government is likely to inject capital into the bank in the financial year ending 30 March 2016 (FY16).

IDBI Bank's VR, which is also at 'bb', is also vulnerable to a downgrade. This is due to rise in the stressed asset ratio to 13.6 per cent in FY15 from 11 per cent in FY14, and a traditionally thin capital buffer and higher exposure to stressed sectors.

IDBI's VR affirmation reflects the positive impact that the government capital injection of INR2,230 crore, the slower loan growth and its greater focus on retail and priority-sector loans are likely to have on its capital buffers.

The outlook for Indian bank credit profiles in FY16 is more positive following the difficult year in FY15, when system-wide loans increased by 9.7 per cent, the slowest pace in a decade. There are, however, challenges from stressed sectors such as infrastructure and steel, high corporate leverage, and continued pressure on asset quality and capital.

The affirmation of ratings of most banks factor in a slower rise in non-performing loans and expectations of government capital injections in the public sector banks. The asset quality would not deteriorate materially from current levels.

Punjab National Bank

ICICI Bank

State Bank of India