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Market Shrugs Off Fitch Downgrade Of SBI, ICICI, Others

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Global agency Fitch 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.

However, the market shrugged off the action and most of the stock affected by rating action ended in green, as did the BSE benchmark Sensex and NSE Nifty.

On the BSE, Shares of SBI settled 0.65 per cent higher at Rs 2,116.70, while ICICI Bank was up 0.83 per cent at Rs 833.30.

PNB gained 0.43 per cent and Axis Bank moved up by 0.23 per cent. Among others, Bank of Baroda rose by 1.39 per cent, Canara Bank was up 0.89 per cent and IDBI Bank climbed 1.07 per cent. The BSE benchmark Sensex ended at 16,896.63, up 36.83 points.

Barely two days ago, Fitch had lowered the credit outlook of the country from stable to negative citing corruption, inadequate reforms, high inflation and slow growth. At that time, Finance Minister Pranab Mukherjee had said that the downgrade was based on older data.

Also the Fitch downgrade had come two months after the downgrade by S&P, another rating agency. The Chief Economic Advisor Kaushik Basu had said it was a result of the herd mentality of the policy takers.

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 in a statement.

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 Chairman and Managing Director M D Mallya said, "This is because of the action which they (Fitch) have taken on the sovereign."

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

"Investors are tired of downgrades that is why these stocks did not show any adverse reaction to the Fitch rating outlook," CNI Research Chairman & Managing Director Kishore Ostwal said.

"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 June 18, outlook of seven PSU including NTPC, SAIL, IOC, PFC, GAIL, REC and NHPC has already been lowered to negative. In all, the Fitch action has affected 19 Indian entities.

"The outlook revision of the financial institutions reflects their close linkages with the sovereign by virtue of their high exposure to domestic counter-parties and holdings of domestic sovereign debt," Fitch said in a statement.

Rating Not To Affect Overseas Borrowing: SBI
State Bank of Indian Managing Director Diwakar Gupta told PTI that "rating action will not have any significant impact on our overseas borrowing plan".

SBI plans to raise $1-2 billion via bonds from overseas market over period of next 3-4 months, he added.

Fitch also said the banks continue to have reasonable customer deposit base, domestic franchises and adequate capital.

The non-banking financial entities, meanwhile, lack the funding advantage, which puts them more at risk during times of increased market volatility, it said.

Fitch also said sovereign support for both the large banks and 'policy-type institutions' is expected to remain strong, with the former benefiting from their large share of system assets and deposits and the latter from their association with the government.

Earlier this week, Fitch lowered India's credit rating outlook to negative, citing corruption, inadequate reforms, high inflation and slow growth.

India faces an "awkward combination" of slow growth and elevated inflation, Fitch had said, adding that the country "also faces structural challenges surrounding its investment climate in the form of corruption and inadequate economic reforms".

Standard and Poor's (S&P) had in April lowered India's rating outlook to negative from stable. It also warned on June 11 that the country may be the first in the BRIC grouping to falter and its sovereign credit rating may slip below investment grade.