Fitch Ratings has downgraded by one notch the viability ratings (VRs) of four large banks — State Bank of India (SBI), ICICI Bank, Axis Bank and Bank of Baroda (BoB).
The credit rating agency said its rating actions are driven by rapid deterioration in the operating environment for banks in India following the coronavirus pandemic and measures to contain its spread.
Fitch, in a statement, said the VRs of SBI, ICICI Bank and Axis Bank have been downgraded from ‘bb+’ to ‘bb’. The VR of BoB has been downgraded from ‘bb’to ‘bb-’.
According to the credit rating agency’s rating scale, ‘bb’ ratings indicate “Speculative Fundamental Credit Quality”, denoting moderate prospects for ongoing viability. A moderate degree of fundamental financial strength exists, which would have to be eroded before the bank would have to rely on extraordinary support to avoid default. However, an elevated vulnerability exists to adverse changes in business or economic conditions over time.
According to Fitch, Viability Ratings (VRs) measure the intrinsic creditworthiness of a financial institution (FI), and reflect its opinion on the likelihood that the entity will fail.
Fitch views a bank as having failed when it either: has defaulted — stopped servicing its senior obligations to third-party, non- government creditors (unless this is a result of legal restrictions), completed a distressed debt exchange in respect to these obligations, or entered bankruptcy proceedings; or requires extraordinary support, or needs to impose losses on subordinated obligations, to restore its viability.
However, Fitch does not view a bank as having failed when: it has defaulted as a result of legal restrictions on servicing its obligations, while the bank itself remains solvent and liquid; or external support made available, or losses imposed on subordinated obligations, were in the agency’s view not necessary to restore the bank’s viability