Mumbai: Two international rating agencies - Moody's and Fitch - have downgraded debt ratings of India's top three public-sector banks - State Bank of India, Bank of Baroda and Punjab National Bank - citing worsening credit quality and recapitalisation concerns.
While Moody's slashed SBI's senior unsecured debt and local currency deposit rating by a notch to 'Baa3', from 'Baa2' earlier, citing asset quality and recapitalisation concerns, Fitch Ratings downgraded viability ratings of Punjab National Bank (PNB) and Bank of Baroda (BoB) by one notch earlier in the day 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 appropriateness of supported debt and deposit ratings of SBI at a level no higher than the sovereign," Moody's said in a statement late on Monday.
An SBI spokesperson refused to comment saying the management is discussing the development.
On downgrading BoB, Fitch said, 50 per cent of the bank's loan book (both onshore and offshore loans) is forex denominated which could be a greater source of instability to its credit profile given the recent currency volatility.
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."
Giving the rationale for the action on SBI, Moody's said the ongoing gloom on the economic front will result in the asset quality, with its loan impaired ratio already touching 8.6 per cent, with a heavy increase in the June quarter.
"While there may be a seasonal element to this rise, the spike in NPLs illustrates that the bank's asset quality is under pressure," Moody's said.
