On Monday, Fitch Ratings revised its Long-Term Issuer Default Ratings (IDR) on nine Indian banks from 'stable' to 'negative.' The change comes in line with its revision in the outlook for the Indian economy on 18 June.
The rating agency has revised its outlook to 'negative' for Export-Import Bank of India (EXIM), State Bank of India, Bank of Baroda, Bank of Baroda (New Zealand), Bank of India, Canara Bank, Punjab National Bank, ICICI Bank and Axis Bank. It has also affirmed IDBI Bank (IDBI) rating while maintaining the outlook at negative.
"The rating actions follow Fitch's revision of the outlook on the 'BBB-' rating on India to negative from stable on June 18, 2020, due to the impact of the escalating coronavirus pandemic on India's economy," Fitch Ratings said in a statement.
"They are based on Fitch's assessment of high to moderate probability of extraordinary state support for these banks, which takes into account our assessment of the sovereign's ability and propensity to provide extraordinary support," it added.
As the negative outlook on India's sovereign rating reflects an increasing strain on the state's ability to provide extraordinary support, due to the sovereign's limited fiscal space and the significant deterioration in fiscal metrics due to challenges from COVID-19 pandemic, ratings of banks that are support driven were affected by it.
"The rating action does not affect the banks' Viability Ratings (VRs)," Fitch said. "EXIM does not have a VR as its role as a policy bank makes an assessment of its standalone credit profile less meaningful."
EXIM is of high strategic and systemic importance due to its unique policy role, while SBI is the largest Indian bank with nearly 25 percent market share in system assets and deposits. Further, SBI being 57.9 percent government-owned has a much broader policy role than peers.