Fitch, the international ratings agency has reduced the viability rating of the Punjab National Bank (PNB). This reduction of the rating by one notch was done while confirming the credit ratings on nine banks such as ICICI Bank and SBI.
The Long Term IDR (Issuer Default Ratings) on State Bank of India, PNB, Bank of Baroda (New Zealand), Bank of Baroda, IDBI Bank, Canara Bank, Axis Bank and ICICI Bank has been confirmed at BBB-.
In the case of the Indian Bank, Fitch has confirmed that the IDR that opines on the relative vulnerability of an entity to default on the financial obligations. It is also confirmed to be at BB+.
As per the agency, the PNB’s Viability Rating (VR) that measures the essential creditworthiness has been reduced by one notch from BB+ to BB-. This reflects the increasing risk to the capital position of the bank from its stock of stressed assets that has increased at a faster rate in comparison to the replenishment.
As per Fitch, the reduction reflects the hope of Fitch that the capital buffers are doubtful to improve though the state might inject the capital into the bank this fiscal. Moreover, the stressed assets of the bank seem to take a longer time to resolve in comparison to its peers.
The VRs estimate the essential creditworthiness or credit ratings of a bank of financial institution. Moreover, the rating will reflect the opinion of Fitch on the possibility that the entity might fail.
In July this year, Fitch cut its real GDP growth forecasts in India from 8 percent to 7.8 percent for the fiscal year 2016. Also, the same for the fiscal year 2017 has been reduced from 8.3 percent to 8.1 percent.
Following the tough fiscal year this time, the fiscal 2016 is expected to be positive for the Indian bank credit ratings. This year, the system wide loans have increased by 9.7 percent, which is the slowest pace in ten years.
The rating agency stated that the seven part plan of the government meant to reform the PSU banks could be a vital step taken towards the following factors. They are amplified transparency, greater accountability and better governance.
