Fitch, which has a negative sector outlook on the domestic banks, however, said the new NPA framework has accelerated bad-loan recognition, and should improve the health over the long term.
"However, heavy losses and capital erosion reinforce sour belief that sector core capitalisation will remain weak unless authorities provide more capital than the budgeted $11 billion," it added.
Also Read: PNB's Viability Rating Down, Says Credit Rating Agency
Nineteen of the 21 state-run banks have reported losses in FY18, cumulatively wiping out almost all of the $13-billion capital injections during the year. Eleven of them reported common equity Tier 1 (CET1) ratios that fell short of the 8 per cent requirement for Basel III capitalmigration.
"We expect internal capital generation to remain weak, although many state banks should be able to recover from losses in FY19. Credit cost, which rose to 4.3 per cent on average at state-owned banks from 2.5 per cent in FY17 are likely to moderate, but ageing provisions, slippage from watchlist portfolios and the poor growth outlook limits the upside," the agency said.
The long-term ratings of SBI, BoB, Canara Bank and BoIare driven by their support ratings of '2' and support rating floors of 'BBB-', Fitch said, adding the support ratings and support rating floors reflect its expectation that the banks are likely to receive extraordinary government support due to their high systemic importance and the government ownership. On the VR downgrade of SBI, the agency said, "The one-notch downgrade to 'BB+' from 'BBB-' reflects the bank's vulnerable core capitalisation from its prolonged asset quality problems and weak earnings."
SBI's NPA ratio increased further to 11 per cent, while its net NPL/core capital exceeded 50 per cent. Both ratios are better than most of public sector banks, but have increased risk for core capitalisation.
On the VR downgrade of BoB, it said the one-notch downgrade to 'BB' from 'BB+' reflects increasing pressure on its capital position from extended financial weakness in terms of NPAs and earnings.
BoB's CET1 ratio at 9.2 per cent is slightly better despite losses and is higher than that of most state-owned peers, but its NPA ratio jumped to 12.3 per cent. Canara Bank's VR of BB reflects the 60 bps improvement in its CET1 ratio to 9.5 per cent in FY18, supported by fresh equity, over and above that infused by the government. On BoI, which has a VR of 'B+', the report said this is at the lower end of large public-sector banks and reflects its weak financial position, as evident from three years of consecutive losses and a significant jump in its gross NPAs16.6 per cent in FY18.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)