Mumbai June 13 (IANS) US agency Fitch Ratings on Wednesday downgraded the Viability Rating (VR) of both state-run State Bank of India (SBI) and Bank of Baroda (BoB) by one notch while affirming the BBB Long-Term Issuer Default Ratings (IDRs) of SBI BoB Canara Bank and Bank of India with a stable outlook.
The American agency said the one notch VR downgrade of SBI to bb+ from bbb- reflects the bank s vulnerable core capitalisation from its prolonged asset quality problems and weak earnings.
"Fitch has downgraded the Viability Rating (VR) of SBI and BoB by one notch to bb+ and bb respectively reflecting their weakened intrinsic risk profile due to the negative effect of persistently poor asset quality and earnings on their capital position " said a statement by Fitch which has a negative sector outlook on Indian banks.
"The banks core capital buffers also appear more vulnerable to moderate shocks."
The statement said that 19 of India s 21 state-run banks reported losses in the last financial year cumulatively negating almost all of the government s $13 billion capital injections during the year.
"We believe more fresh capital is needed for growth and to manage heightened balance-sheet stress " Fitch said.
It pointed out that SBI s non performing loan ratio increased further to 11 per cent which has increased risk for core capitalisation.
The one notch VR downgrade of BoB to bb from bb+ reflects increasing pressure on its capital position from extended financial weakness in terms of its non-performing loans (NPLs) and earnings. The bank s NPL ratio in the last fiscal rose to 12.3 per cent.
Bank of Baroda s portfolio of loans on the risk watch-list is around 2 per cent and can add to asset quality pressure if NPL resolution slows Fitch said.

--IANS bc/vd