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Fitch lowers outlook of 12 financial entities

Global agency Fitch on Wednesday revised downwards credit rating outlook of 12 financial entities including State bank of India [SBI], ICICI Bank and Punjab National Bank [PNB] to negative, following a similar revision for India’s sovereign outlook.

Barely two days ago, Fitch had lowered the credit outlook of India from stable to negative. The downward revision in outlook may result in increased cost of fund from overseas. The first to be affected may be the State Bank of India which recently announced its plans to raise $2 billion from overseas market.

‘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,’ Fitch said.

The list of downgraded entities include six PSUs and two private banks. These include Bank of Baroda [BoB] and its overseas subsidiary Bank of Baroda [New Zealand], Canara Bank IDBI Bank and Axis Bank.

Others to be affected by the rating action include Export-Import Bank of India, Hudco, IDFC and Indian Railway Finance Corporation.

Commenting on the Fitch action, Bank of Baroda CMD M D Mallya said, ‘This is because of the action which [Fitch has] taken on the sovereign.’

Private sector lender Axis Bank said the rating action will not have impact on the bank.

‘We do not anticipate the present action to have any material impact on the bank,’ Axis Bank president, Treasury and International Banking, P Mukherjee said.

Following the sovereign rating action on 18 June, outlook of seven PSU including NTPC, SAIL, IOC, PFC, GAIL, REC and NHPC has already been lowered to negative. The Fitch action has affected 19 Indian entities.
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