RPT-Fitch revises 10 Indian FIs' outlook to stable; affirms IDRs

Source : REUTERS
Last Updated: Fri, Jun 14, 2013 10:20 hrs

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June 14 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has revised 10 India-based financial institutions' Outlook to Stable from Negative, while affirming their respective ratings, including their 'BBB-' Long-Term (Issuer Default Ratings (IDRs). These include six government banks (including an international banking subsidiary of a government bank), two private banks and two wholly owned government institutions. A full list of rating actions is at the end of this rating action commentary.

The change in the Outlook on the IDRs follows the revision of the Outlook on India's Long-Term Foreign- and Local-Currency IDRs to Stable from Negative (see rating action commentary dated 12 June 2013 at www.fitchratings.com). The Outlook revision for all of the entities is driven either by their Support Rating (SR) of '2' and Support Rating Floor (SRF) of BBB- or by their Viability Rating (VR) of 'bbb-'.

The affected banks are State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BOB), Bank of Baroda (New Zealand) Limited (BOBNZ), Canara Bank (Canara), IDBI Bank Ltd. (IDBI), ICICI Bank Ltd. (ICICI), Axis Bank (Axis), Export-Import Bank of India (EXIM), and Housing and Urban Development Corporation Ltd. (HUDCO).

KEY RATING DRIVERS - IDRs and VRs

The revision in Outlook for SBI, ICICI, BoB, PNB, Canara, IDBI, EXIM and HUDCO, in line with the sovereign rating change, is primarily driven by a strong propensity and ability to support the banks if needed. SBI, ICICI, PNB, BOB, Canara and IDBI are large domestic banks with a pan-India franchise and have a significant share of the system's assets and deposits. BOBNZ's rating is aligned with that of its parent BOB given strong explicit and implicit linkages with its parent.

The SR and SRF of '2' and 'BBB-' for EXIM and HUDCO are driven by their role as policy banks which are also supported by 100% government ownership. Fitch notes though that among policy banks, EXIM's loan book is almost entirely weighted towards its policy goals.

ICICI's and Axis's VRs which are at 'bbb-' - the same level as the sovereign's IDRs - also support the Outlook revision, due to their steadily improving standalone credit profile despite difficult market conditions. While asset quality pressures cannot be ruled out - particularly from their infrastructure exposures - strong funding and profitability coupled with robust capital position provide adequate buffer against stress.

Fitch expects non-performing loans (NPLs) and restructured assets to continue to rise in the financial year ending March 2014. Government banks' stressed assets were at 11.59% as of end-2012 against the sector average of 9.61%. Asset quality of certain government banks, such as PNB, has witnessed a sharp deterioration which has put their VR under pressure. Further deterioration from current levels will add further pressure which may lead to a downgrade of their VR.

The ratings of the tier 1 subordinated bonds and upper tier 2 bonds are consistent with the approach taken for other similar performing securities based on Fitch's criteria.

RATING SENSITIVITIES - IDRs and VRs

Banks whose IDRs are driven by SRF see negative rating action if either the sovereign rating or the Outlook is revised downward. For banks whose IDRs are solely driven by VR and constrained by the sovereign rating, a negative rating action on the sovereign or the weakening of the VR may lead to a similar rating change on the IDR. An upgrade to the sovereign rating may, for certain systemically important banks, likely lead to an upgrade to the IDRs, backed by higher SR and SRF. However, for banks whose IDRs are driven by VR and are not constrained by the sovereign rating, a sovereign upgrade may not necessarily lead to an upgrade unless it is supported by its standalone credit strength.

RATING SENSITIVITIES - SRs and SRFs

The SRs and SRFs are determined by the agency's assessment of the government's propensity and ability to support a bank/policy institution, determined by its relative size and systemic importance. A change in the government's ability to provide extraordinary support due to a change in the sovereign ratings would affect the SRs and SRFs. The SRs and SRFs will also be impacted by any change in the government's willingness to extend timely support.

The rating actions are as follows:

SBI:

- Long-Term IDR affirmed at 'BBB-'; Outlook changed to Stable from Negative

- Short-Term IDR affirmed at F3'

- Viability Rating affirmed at 'bbb-'

- Support Rating affirmed at '2'

- Support Rating Floor affirmed at 'BBB-'

- USD5bn MTN programme affirmed at 'BBB-'

- USD400m perpetual tier 1 bonds affirmed at 'B'

PNB:

- Long-Term IDR affirmed at 'BBB-'; Outlook changed to Stable from Negative

- Short-Term IDR affirmed at 'F3'

- Viability Rating affirmed at 'bbb-'

- Support Rating affirmed at '2'

- Support Rating Floor affirmed at 'BBB-'

BOB:

- Long-Term IDR affirmed at 'BBB-'; Outlook changed to Stable from Negative

- Short-Term IDR affirmed at 'F3'

- Viability Rating affirmed at 'bbb-'

- Support Rating affirmed at '2'

- Support Rating Floor affirmed at 'BBB-'

- USD500m senior notes under MTN programme affirmed at 'BBB-'

- USD350m senior notes under MTN programme affirmed at 'BBB-'

- USD300m upper tier 2 notes under MTN programme affirmed at 'B+'

BOBNZ:

- Long-Term IDR affirmed at 'BBB-'; Outlook changed to Stable from Negative

- Support Rating affirmed at '2'

Canara:

- Long-Term IDR affirmed at 'BBB-'; Outlook changed to Stable from Negative

- Short-Term IDR affirmed at 'F3'

- Viability Rating affirmed at 'bb+'

- Support Rating affirmed at '2'

- Support Rating Floor affirmed at 'BBB-'

- USD2bn MTN programme affirmed at 'BBB-'

- Senior debt under MTN programme affirmed at 'BBB-'

- USD350m of senior notes under MTN programme affirmed at 'BBB-'

- USD250m upper tier 2 notes under MTN programme affirmed at 'B+'

IDBI:

- Long-Term IDR affirmed at 'BBB-'; Outlook changed to Stable from Negative

- Short-Term IDR affirmed at 'F3'

- Viability Rating affirmed at 'bb'

- Support Rating affirmed at '2'

- Support Rating Floor affirmed at 'BBB-'

ICICI:

- Long-Term IDR affirmed at 'BBB-'; Outlook changed to Stable from Negative

- Short-Term IDR affirmed at 'F3'

- Viability Rating affirmed at 'bbb-'

- Support Rating affirmed at '2'

- Support Rating Floor affirmed at 'BBB-'

- USD2.9bn senior notes affirmed at 'BBB-'

- USD1.5bn upper tier 2 bonds affirmed at 'B+'

Axis:

- Long-Term IDR affirmed at 'BBB-'; Outlook changed to Stable from Negative

- Short-Term IDR affirmed at 'F3'

- Viability Rating affirmed at 'bbb-'

- Support Rating affirmed at '3'

- Support Rating Floor affirmed at 'BB+'

- Foreign currency senior debt affirmed at 'BBB-'

- EUR2bn MTN programme affirmed at 'BBB-'

- USD1.6bn senior unsecured notes affirmed at 'BBB-'

EXIM:

- Long-Term IDR affirmed at 'BBB-'; Outlook changed to Stable from Negative

- Short-Term IDR affirmed at 'F3'

- Support Rating affirmed at '2'

- Support Rating Floor affirmed at 'BBB-'

HUDCO:

- Long-Term IDR affirmed at 'BBB-'; Outlook changed to Stable from Negative

- Short-Term IDR affirmed at 'F3'

- Support Rating affirmed at '2'

- Support Rating Floor affirmed at 'BBB-'




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