Fitch downgrades banks

Fitch, one of the biggest credit rating agencies has downgraded the outlook of banking sector to negative from stable. Fitch observed downside risk amid rising stressed loans and weak corporate earnings. Thereby it downgraded the ratings of nine banks to ‘BBB-‘.

The long term rating of 9 banks viz; State Bank of India, Bank of Baroda and its New Zealand arm, Punjab National Bank, Canara Bank, IDBI Bank, ICICI Bank and Axis Bank has been downgraded because of the deteriorating asset quality and weak earnings. The situation may continue for next year and a half as banks are exposed to sectors like Infrastructure, Iron & Steel etc. 

The total Non-performing loans (NPLs) have come in more than Rs 8 trillion with an increase of over 13 per cent in FY 2015-16 in March 2016. The Gross NPL of the banks has increased to 7.6 per cent in March from 5.1 per cent in September 2015.

The major hit of the stressed assets and thereby high loan provisioning is to the public sector banks and needs some initiative from the government. Government has committed to inject Rs 25000 crore in the current fiscal and Rs 18000 crore in near term. In totality Rs 70000 crore by FY 2018-19. Government is mulling to merge the 27 public sector banks. This may help a systematic and faster recovery process. Banks may see some downside in the coming sessions.