Mumbai, Sept. 23: Two international rating agencies — Moody’s and Fitch — today downgraded the debt rating of the country’s top three public sector banks — State Bank of India, Bank of Baroda and Punjab National Bank — citing worsening credit quality and recapitalisation concerns.
Moody’s slashed SBI’s senior unsecured debt and local currency deposit rating by a notch to Baa3 from Baa2.
Fitch Ratings downgraded the viability ratings of Punjab National Bank (PNB) and Bank of Baroda (BoB) by one notch to BB+ from BBB- but retained their long-term issuer default ratings at BBB-.
“A combination of increasing pressure on credit fundamentals and ongoing reliance on fiscally constrained government to maintain capital at levels desired by regulators argue for the appropriateness of supported debt and deposit ratings of the SBI at a level no higher than the sovereign,” Moody’s said in a statement.
An SBI spokesperson refused to comment, saying the management is discussing the development.
According to Fitch, the economic slowdown is likely to be more protracted than initially expected because of the currency volatility in recent months and a persistent high inflation. Pressures are also building on internal capital generation because of lower loan growth and higher provisioning requirements.
On its rating action on PNB, Fitch said the bank had seen a sharp increase in its stressed assets, which stood at around 15 per cent of the loans in the previous fiscal, the highest among the state-owned banks rated by it.
“The downgrade in 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.
On downgrading BoB, Fitch said, 50 per cent of its loan book (both onshore and offshore loans) was forex denominated which could be a greater source of instability to its credit profile given the recent currency volatility.
“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,” Fitch said.
Fitch also downgraded Indian Bank’s long-term issuer default rating to BB+ from BBB- and its viability rating to BB+ from BBB-.