Fitch Ratings Inc. downgraded the viability ratings (VRs) of Canara Bank and IDBI Bank from ‘bb' to ‘bb-', the credit agency said in a press release on Tuesday.
The capital positions of both these banks are at greater risk than their higher-rated peers as ‘stressed assets have increased at a faster pace than capital replenishment, Fitch Ratings said.
IDBI Bank's asset quality slumped more than Fitch Rating's expectations, the ratings agency said.. A larger proportion of the bank's loans are at risk of being classified as vulnerable as compared to its peers, Fitch added.
IDBI's VR also factors in its lower pre-provision earnings and weaker core capitalisation, which is at risk of further erosion in the absence of significant capital injection.Fitch Ratings Press Release
Fitch says Canara Bank too is vulnerable, thanks to the sharp increase in the ratio of unprovided NPLs to equity to 66 percent in FY16 from 27 percent in FY15.
Fitch affirmed the long-term Issuer Default Ratings (IDRs) of nine Indian banks while also revising the sector outlook to ‘stable' from ‘negative'. It also said that to regain strength, Indian banks will have to resolve their asset quality and increase capital.
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