Two international rating agencies--Moody's and Fitch--today downgraded the debt rating of the nation'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, citing asset quality and recapitalisation concerns.
Fitch Ratings earlier in the day dowgraded 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 appropriateness of supported debt and deposit ratings of SBI at a level no higher than the sovereign," Moody's said in a late evening statement.
When contacted an SBI spokesperson refused to comment saying the management is discussing the development.
SBI's revised rating for the senior unsecured debt and local currency deposit instruments would now be Baa3 from the earlier Baa2, Moody's said, while revising down its outlook on the bank's financial strength rating to negative from stable.
On downgrading BoB, Fitch said, 50 per cent of its 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."
"The downgrade to 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.
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