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State-run bank's credit profile at risk if not adequately funded, says Fitch 

February 22, 2016


With the profitability of Indian public sector banks (PSBs) severely dented as seen from recent third-quarter results, their credit profile will come under pressure unless they are adequately capitalised, Fitch Ratings said on Friday.

"Fitch's estimated capital need for the system of $140 billion may need to be reassessed, given some of the losses," the US agency said in a research note.

"The stand-alone credit profile of many Indian public sector banks should come under pressure unless there is meaningful action to restore capital adequacy," it said.

Significant quarterly losses reported at several large public banks last week, including Bank of Baroda and Bank of India, underscored long-standing balance-sheet and capital risks stemming from legacy issues pertaining to poor asset quality and weak provisioning," Fitch added.

The ratings firm said the sudden drop in profitability of PSBs for the third quarter of the current fiscal was triggered mainly by higher provisioning following a Reserve Bank of India (RBI) order on reclassification of distressed loans.

The RBI, in line with its target for banks to clean up their balance-sheets by March 2017, has nudged both public and private banks to identify stressed accounts and significantly raise provisioning over two quarters through to the end of the current fiscal. Read more

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