‘Poor asset quality has hurt risk profile’
Ratings agency Fitch has downgraded viability ratings of State Bank of India and Bank of Baroda by a notch to ‘bb+’ and ‘bb’ respectively citing the lenders’ weakened risk profile due to poor asset quality and the vulnerability of their capital buffers to moderate shocks.
“Eleven banks reported common equity Tier 1 ratios that fell short of the 8% requirement for Basel III’s final phase of capital migration,” Fitch said in a release on Wednesday. “We expect internal capital generation to remain weak, although many state banks should be able to recover from losses in FY19.” Fitch has a ‘negative’ sector outlook on Indian banks.
However, Fitch said “sector NPL ratios are closer to what we believe would be full recognition of legacy problems and provision cover has improved.”
The ratings agency said Indian banks’ solid and resilient funding and liquidity positions remained intact and while deposit growth had slowed since demonetisation, depositor confidence remained high due to state banks’ government ownership.
“This is evident in banks’ retail deposit composition, which generally exceeds 80%,” Fitch added.