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Fitch lowers rating outlook of SBI, ICICI, PNB among others

Last Updated: Wednesday, June 20, 2012 - 19:38

New Delhi: Global agency Fitch Wednesday revised downwards credit rating outlook of 12 financial entities including SBI, ICICI Bank and PNB to negative, following a similar revision for India's sovereign outlook.

Barely two days ago, Fitch had lowered the credit outlook of the country from stable to negative.

The downward revision in outlook may result in increased cost of fund from overseas. The first to be affected may be the State Bank of India which recently announced its plans to raise USD 2 billion from overseas market.

"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 said in a statement.

The list of downgraded entities include six PSUs and two private banks. These include Bank of Baroda (BoB) and its overseas subsidiary Bank of Baroda (New Zealand), Canara Bank IDBI Bank and Axis Bank.

Others to be affected by the rating action include Export-Import Bank of India, Hudco, IDFC and Indian Railway Finance Corporation.

Commenting on the Fitch action, Bank of Baroda Chairman and Managing Director M D Mallya said, "This is because of the action which they (Fitch) have taken on the sovereign."

Private sector lender Axis Bank said the rating action will not have impact on the bank.

"We do not anticipate the present action to have any material impact on the bank," Axis Bank President, Treasury and International Banking, P Mukherjee said.

Following the sovereign rating action on June 18, outlook of seven PSU including NTPERCENT, SAIL, IOC, PFC, GAIL, REC and NHPERCENT has already been lowered to negative. In all, the Fitch action has affected 19 Indian entities.

However, rating action had not impacted on the share prices of such entities. Most of the stock affected by rating action ended in green.

State Bank of Indian Managing Director Diwakar Gupta told PTI that "rating action will not have any significant impact on our overseas borrowing plan".

SBI plans to raise USD 1-2 billion via bonds from overseas market over period of next 3-4 months, he added.

Fitch also said the banks continue to have reasonable customer deposit base, domestic franchises and adequate capital.

The non-banking financial entities, meanwhile, lack the funding advantage, which puts them more at risk during times of increased market volatility, it said.

Fitch also said 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.

Earlier this week, Fitch lowered India's credit rating outlook to negative, citing corruption, inadequate reforms, high inflation and slow growth.

India faces an "awkward combination" of slow growth and elevated inflation, Fitch had said, adding that the country "also faces structural challenges surrounding its investment climate in the form of corruption and inadequate economic reforms".

Standard and Poor's (S&P) had in April lowered India's rating outlook to negative from stable. It also warned on June 11 that the country may be the first in the BRIC grouping to falter and its sovereign credit rating may slip below investment grade.


First Published: Wednesday, June 20, 2012 - 13:33
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