India’s state-owned banks have ratings cut by Fitch

RATINGS agency Fitch has slashed the creditworthiness of three Indian banks, highlighting concerns about the sector’s safety as the Indian economy deteriorates.

The Indian Bank is the only institution having its issuer default rating cut. Fitch is also cutting its viability rating, along with those of the Punjab National Bank and Bank of Baroda.

The three institutions are all state-owned, with Fitch specifically pointing to government banks as a problem: “Private banks, though not unaffected, have showed superior performance, with earnings and capital buffers at levels significantly higher than state-owned ones.”

Fitch suggests that after recent and rapid currency devaluation, asset quality at Indian banks may worsen, against a backdrop of slower growth. The agency also said inflation is an issue. New Reserve Bank of India governor Raghuram Rajan appears to share the worry, hiking the benchmark interest rate by 0.25 per cent last week.