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Informist, Tuesday, Mar. 11, 2025

MUMBAI – Fitch Ratings has affirmed the 'BBB-' long-term issuer default ratings of three public sector banks--Punjab National Bank, Union Bank of India, and Bank of India, with stable outlooks, the rating agency informed exchanges on Tuesday. Fitch has upgraded the viability ratings of each bank to 'bb-' from 'b+'.

Fitch has affirmed the ratings in view of the government stake in the banks. The government holds 70% stake in Punjab National Bank, 75% in Union Bank of India, and 73% in Bank of India.

The government support ratings of all three banks have also been affirmed at 'bbb-', indicating Fitch's view of a high likelihood of state support in times of need.

Looking ahead, the long-term ratings of the three banks depend on changes in India's sovereign rating or any shift in the government's willingness to support these banks. If India's sovereign rating is downgraded, the banks' ratings are likely to follow. Similarly, positive sovereign rating action could lead to a corresponding change to the banks' long-term ratings, the rating agency said. "However, an upgrade of the sovereign rating appears less likely in the near term," the agency added.

The upgrade in the banks' viability ratings reflects improvements in their financial health and risk profiles. According to Fitch Ratings, Union Bank of India has diversified its loan book and reduced exposure to high-risk loans, which has improved its asset quality and financial stability. However, the bank's history of earnings volatility and continued government influence are risks to its credit profile. Further upgrades in Union Bank's viability rating will require ongoing improvements in its risk management practices. Significant decline in key financial metrics, such as a worsening impaired-loan ratio or a drop in common equity Tier-I, could also lead to a downgrade of the bank's viability rating, Fitch said.

Bank of India has also improved its loan book, reduced non-performing loans, and strengthened its financial metrics. However, its risk profile still faces challenges due to its dependence on government support, which has led to earnings volatility in the past. To support a higher viability rating consistent progress in risk management is required, the rating agency said. 

Punjab National Bank's viability rating was also upgraded on the back of diversified loan mix, reduced legacy bad loans, and decreased exposure to unsecured retail loans. Though, Fitch Ratings believes that progress has been made, the bank's past volatility and moderate buffers remain risks to its credit profile.

Fitch also considers India's positive macroeconomic outlook in its rating decision, the rating agency said.

On Tuesday, shares of Punjab National Bank ended 0.5% lower at INR 88.17 on the National Stock Exchange, Union Bank of India closed 0.6% higher at INR 114.85, and Bank of India closed 0.6% up at INR 94.99.  End

Reported by Sachi Pandey

Edited by Ashish Shirke

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