Fitch ratings on Wednesday slashed the outlook on its ratings on key banks and financial institutions to negative from stable following the cut in the outlook of the sovereign rating on Tuesday.
Outlook on ratings of State Bank of India,Punjab National Bank,Bank of Baroda,Axis Bank,ICICI Bank,IDFC,IDBI,EXIM Bank and Canara Bank were cut to negative. The agency affirmed the ratings of these financial institutions. Fitch said these banks exposure to sovereign bonds is high and therefore their ratings are closely tied to the countrys rating.
Banks have to invest 24 per cent of their deposits in government bonds as per the Reserve Bank of Indias statutory liquidity ratio (SLR) norm.
The outlook revision of the financial institutions reflects their close linkages with the sovereign by virtue of their high exposure to domestic counterparties and holdings of domestic sovereign debt, the rating agency said in a release.
Further,Fitch said a sovereign rating downgrade would result in a downgrade of the ratings of financial institutions that have a BBB rating. The slow economic growth,weak fiscal outlook,high inflation and slow reforms may impact the standalone ratings of these institutions,Fitch said and added that banks having increased exposure to vulnerable sectors face more risk.