Mumbai, June 20 (IANS) Global ratings agency Fitch Wednesday cut its outlook on leading Indian financial institutions, including State Bank of India (SBI), ICICI Bank and Punjab National Bank (PNB), from "stable" to "negative", a move seen to further dampen investors' sentiments.
The agency's revision of outlook on the leading financial institutions of India, without changing their ratings, follows the similar downgrade in the country's sovereign outlook.
"The outlook revision of the financial institutions reflects their close linkages with the sovereign by virtue of their high exposure to domestic counterparties and holdings of domestic sovereign debt," Fitch Ratings said in a statement.
The agency has cut its outlook on 11 financial institutions. The affected entities include State Bank of India, Punjab National Bank, Bank of Baroda and its subsidiary Bank of Baroda (New Zealand) Limited, Canara Bank, IDBI Bank, ICICI Bank, Axis Bank, Export-Import Bank of India, Housing and Urban Development Corporation, and Infrastructure Development Finance Company.
Fitch assigns 'BBB-' long-term foreign currency issuer default ratings - to these financial institutions. The move would make overseas borrowings by these companies costlier.
Fitch had cut its outlook on India's long-term foreign and local currency ratings to negative from stable in a review released June 18.
Major global ratings agencies have lowered its outlook on India in the last few months due to slowdown in economic growth and lack of reforms.
In April this year, Standard & Poor's lowered its outlook on India to "negative" from "stable" and warned of a ratings downgrade citing deteriorating economic indicators and slow progress on fiscal reforms in the backdrop of a "weakened political setting".
Moody's last month lowered the standalone ratings of India and leading financial institutions to D+ from earlier C-.
Should the sovereign long-term IDR be downgraded, the banks with Viability Ratings (VR) of 'bbb-' would also be affected, given the previously mentioned linkages.
Fitch said that pressures were building generally on the stand-alone credit profile of these financial institutions which would negatively impact viability ratings, "given India's weakening economic and fiscal outlook, slowing business reforms and inflationary pressures that in turn could put further pressure on their future asset quality."
"Viability ratings of banks with concentrated exposures to problematic sectors could be impacted more," it said.
According to Fitch, there is some comfort from the banks' reasonable customer deposit base, established domestic franchises and adequate capitalisation.
"The non-banks, however, lack the funding advantage, which puts them more at risk during times of increased market volatility," Fitch said.
"In the agency's opinion, sovereign support for both the large banks and policy-type institutions is expected to remain strong, with the former benefiting from their large share of system assets and deposits and the latter from their association with the government," the rating agency added.
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