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Indian banks have shown a marked improvement in their risk profile and asset quality, according to a recent report by Fitch Ratings.
The global rating agency noted that this progress has led to upgrades in the Viability Ratings (VRs) of several large Indian banks. Fitch said the recent VR upgrades reflect stronger underwriting standards, better loan diversification, improved asset quality, and stronger buffers to absorb losses. The upgrades signal that Indian banks are better prepared to handle financial stress than in the past. It said, "The recent upgrades of Indian banks, Viability Ratings (VRs) reflect improved risk profile and asset quality". In March 2025, Fitch upgraded the VRs of Punjab National Bank, Union Bank of India, and Bank of India. All three banks are rated at BBB-/Stable for Issuer Default Rating (IDR) and bb- for Viability Rating. In April 2025, Bank of Maharashtra and ICICI Bank Limited also saw their VRs upgraded. Bank of Maharashtra holds a BBB-/Stable IDR and a bb- VR, while ICICI Bank stands out with a BB+/Stable IDR and a bb+ VR--the highest among the nine large Indian banks rated by Fitch. Despite these improvements, the report expects the Issuer Default Ratings of these banks to remain unchanged. This is because these ratings are largely based on the expectation that the Indian government (rated BBB-/Stable) will provide extraordinary support if needed. Therefore, the improvement in banks' internal strength does not directly affect the IDRs. The report also pointed out that some banks, like Bank of Baroda and Canara Bank, continue to face constraints on their VRs due to high growth appetite and risks related to newly issued loans. However, if these banks can sustain their recent financial improvements, Fitch may consider upgrading their VRs as well. After the recent upgrades, all nine large Indian banks rated by Fitch now fall within the 'bb' category in terms of Viability Ratings. This indicated a moderate level of financial strength, with ICICI Bank leading the pack due to its better performance, lower risk appetite, and more stable track record. (ANI)
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