Fitch Gives Thumbs Up: Indian Banks Shine with Better Asset Quality

Ratings Upgraded: Fitch Ratings upgraded the Viability Ratings (VR) of key Indian public sector banks such as Union Bank of India, Punjab National Bank (PNB), and Bank of India from 'b+' to 'bb-'. This indicates a considerable upgrade in the risk management, asset quality, and overall financial position of the banks.

 

Improved Risk Profiles: The transaction is propelled by cleaner loan books, less exposure to riskier segments, and enhanced risk controls. Fitch observes that these banks have cleaned up most of their legacy bad loans and now have minimal unsecured retail loan exposure, reducing their risk.

 

Asset Quality Improvements: Asset quality has significantly improved with impaired-loan ratios declining across the industry. For instance, PNB's impaired-loan ratio declined to 4.1% in 9MFY25 from 5.7% in FY24, with Union Bank's also trending lower. The loan-loss coverage ratios have also improved, and credit costs are stable.

 

Profitability and Capital: Relative to risk-weighted assets, operating profits have increased, boosted by increased treasury income and recoveries. Banks' Common Equity Tier 1 (CET1) ratios are either stable or rising, reflecting improved capital buffers. Bank of India's CET1 ratio, for example, stood at 14.4% in 9MFY25.

 

Positive Outlook: Fitch points to India's strong economic growth, government capital injections, and solid domestic demand as the main drivers of the sector's resilience. The upgrades are a vote of confidence in the current recovery and future stability of the banking system of India.

 

Source: Fitch Ratings, Economic Times, Business Standard