RATING OF INDIAN BANKS WITHIN AND OUTSIDE INDIA BY INTERNATIONAL

RATING AGENCIES

ASSIGNMENT SUBMISSION

TOWARDS PARTIAL FULFILLMENT OF THE ASSESSMENT IN THE SUBJECT OF

MANAGEMENT OF FINANCIAL SERVICES

Submitted by :

Pinaky Pratyangira Paliwal

Roll No. 961

V Semester

B.B.A., L.L.B.

Submitted to:

Professor Rituparna Das

Faculty of Management of Financial

Services

National Law University, Jodhpur

NATIONAL LAW UNIVERSITY, JODHPUR

WORD COUNT: 9075

CONTENTS

Page | ii

CONTENTS....................................................................................................................................ii

INTRODUCTION...........................................................................................................................1

BANKING SECTOR IN INDIA.....................................................................................................1

Market size...................................................................................................................................2

CAMELS Rating Framework..........................................................................................................3

The rating mechanism under CAMELS......................................................................................3

Rating symbols – Domestic Banks..............................................................................................4

Components of CAMELS Rating Framework............................................................................4

I. CAPITAL ADEQUACY......................................................................................................4

II. ASSET QUALITY..............................................................................................................5

III. MANAGEMENT EFFICIENCY......................................................................................6

IV.EARNING QUALITY.......................................................................................................6

V. LIQUIDITY........................................................................................................................7

Composite Rating under CAMELS Rating Framework..............................................................7

RBI’S STANCE FOR NEW BANK RATING SYSTEM..............................................................7

RATING OF INDIAN BANKING BY EXTERNAL NATIONAL AND INTERNATIONAL

RATERS [2011-2014].....................................................................................................................8

Rating Outlook 2014....................................................................................................................8

Key Rating Drivers’ Analysis - IDRs, Support Rating (SR) and Support Rating Floor (SRF):

...............................................................................................................................................10

Key Rating Drivers’ Analysis – VRS:...................................................................................10

Key Rating Drivers’ Analysis - Senior Debt, Upper Tier 2 Debt And Hybrid Tier 1 Debt. .11

Rating Sensitivities - IDR and Senior Debt...........................................................................12

Rating Sensitivities - VR, Upper Tier 2 Debt and Hybrid Tier 1 Debt.................................12

Rating Sensitivities - SRs and SRFs......................................................................................13

IRR’s Analysis of Fitch Overview........................................................................................13

Page | iii

Rating Outlook 2013..................................................................................................................16

Ratings Rationale...................................................................................................................17

Challenges before Indian Banks:...........................................................................................19

Rating Outlook 2012..................................................................................................................22

Rating Outlook 2011..................................................................................................................26

CONCLUSION..............................................................................................................................28

BIBLIOGRAPHY..........................................................................................................................29

Page | iv

INTRODUCTION

“In a bank's balance sheet, liabilities are actually assets and assets are liabilities.”

- Uday Kotak

(Founder of Kotak Mahindra)

A bank lists the current and savings account deposits as liabilities on its balance sheet. These

low-cost deposits are helping banks maintain a healthy margin in the current worsening

economic scenario. On the assets side of the balance sheet are corporate and retail loans that earn

interest for banks. But, with many borrowers unable to repay, these assets turn into liabilities.

The progression of an economy is significantly dependent upon deployment as well as optimum

utilization of resources and most importantly operational efficiency of the various sectors, of

which banking sector plays a very vital role. Banking sector helps in stimulation of capital

formation, innovation and monetization in addition to facilitation of monetary policy. It is

imperative to carefully evaluate and analyse the performance of banks to ensure a healthy

financial system and an efficient economy.

BANKING SECTOR IN INDIA

India is considered among the top economies in the world, with tremendous potential for its

banking sector to flourish. The last decade witnessed a significant upsurge in transactions

through ATMs, as well as internet and mobile banking.

The existing banking structure in India, evolved over several decades, is elaborate and has been

serving the credit and banking services needs of the economy. There are multiple layers in

today's banking structure to cater to the specific and varied requirements of different customers

and borrowers. The banking structure played a major role in the mobilisation of savings and

promoting economic development. In the post financial sector reforms (1991) phase, the

performance and strength of the banking structure improved perceptibly. Financial soundness of

Page | v

the Indian commercial banking system compares favourably with most of the advanced and

emerging countries.1

The country's banking industry looks set for greater transformation. With the Indian Parliament

passing the Banking Laws (Amendment) Bill in 2012, the landscape of the sector has duly

changed. The bill allows the Reserve Bank of India (RBI) to make final guidelines on issuing

new licenses, which could lead to a greater number of banks in the country. The style of

operation is also slowly evolving with the integration of modern technology into the banking

industry.

In the next 5-10 years, the sector is expected to create up to two million new jobs driven by the

efforts of the RBI and the Government of India to expand financial services into rural areas.Two

new banks have already received licences from the government, and the RBI's new norms will

offer incentives to banks to spot bad loans and take necessary recourse to curb the practices of

rogue borrowers.2

Market size

The size of banking assets in Indiatotalled US$ 1.8 trillion in FY 13 and is expected to touch

US$ 28.5 trillion in FY 25.Bank deposits have grown at a compound annual growth rate (CAGR)

of 21.2 per cent over FY 06-13. In FY 13, total deposits were US$ 1,274.3 billion.

The revenue of Indian banks increased from US$ 11.8 billion to US$ 46.9 billion over the period

2001-2010. Profit after tax also reached US$ 12 billion from US$ 1.4 billion in the period.

Credit to housing sector grew at a CAGR of 11.1 per cent during the period FY 08-13. Total

banking sector credit is anticipated to grow at a CAGR of 18.1 per cent (in terms of INR) to

reach US$ 2.4 trillion by 2017.

In FY 14, private sector lenders experienced significant growth in credit cards and personal loan

businesses. ICICI Bank saw 141.6 per cent growth in personal loan disbursement in FY 14, as

per a report by Emkay Global Financial Services. The bank also experienced healthy growth of

1 Department of Banking Operations and Development (DBOD), Department of Economic and Policy Research (DEPR), Banking Structure in India -The Way Forward, Discussion Paper, Reserve Bank of India, August 2013, Available at http://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/DPBS27082013_F.pdf2 Indian Brand Equity Foundation, Banking Sector in India, Sectoral Report 2014, Available at http://www.ibef.org/industry/banking-india.aspx

Page | vi

20.8 per cent in credit card dues, according to the report. Axis Bank's personal loan business also

grew 49.8 per cent, with its credit card business expanding by 31.1 per cent.

CAMELS Rating Framework

In the 1980s, CAMEL rating system was first introduced by U.S. supervisory authorities as a

system of rating for on-site examinations of banking institutions. RBI had set up a working group

headed by Sh. S Padmanabhan to take a fresh look at banking supervision during 1995. It

suggested method for on-site and off-site supervision and subsequent rating banks by RBI. The

committee suggested that supervision of banks should focus on defined parameters of soundness,

financial, managerial and operational efficiency. Accordingly, it recommended that the banks

should be rated on a 5 point scale of A to E, widely on the lines of international CAMELS rating

model.

CAMELS stand for six important parameters:

C Capital adequacy ratio

A Asset quality

M Management Effectiveness

E Earning (i.e. profitability)

L Liquidity (asset-liability management)

S System and controls

Table 01: CAMELS

The rating mechanism under CAMELS

Under this system, each banking institution subject to on-site examination is evaluated on the

basis of five (now six) critical dimensions relating to its operations and performance, which are

referred to as the component factors. These are Capital, Asset Quality, Management, Earnings

and Liquidity used to reflect the financial performance, financial condition, operating soundness

and regulatory compliance of the banking institution. A sixth component relating to Sensitivity to

market risk has been added to the CAMEL rating to make the rating system more risk-focused.

Each of these 6 components is weighed on a scale of 1 to 100 and then rated on a scale of 1

(best) to 5 (worst). Each of them contains several sub-parameters with individual weightage. A

Page | vii

composite rating is assigned as an abridgement of the component ratings and is taken as the

prime indicator of a bank’s current financial condition. The composite rating ranges between 1

(best) and 5 (worst), and also involves a certain amount of subjectivity based on the examiners’

overall assessment of the institution in view of the individual component assessments.3

Rating symbols – Domestic Banks

The rating symbols A to E indicate as under:

Rating

Symbol

Indication

A Basically sound in every respect

B Fundamentally sound but with moderate weaknesses

C Financial, operational or compliance weaknesses that give cause for supervisory

concern

D Serious or immoderate finance, operational and managerial weaknesses that

could impair future viability

E Critical financial weaknesses that render the possibility of failure high in the near

term

Table 02: Rating symbols under CAMELS rating framework

Components of CAMELS Rating Framework

I. CAPITAL ADEQUACY

Capital base of financial institutions facilitates depositors in forming their risk perception about

the organization. Also, it is a significant stricture for financial managers to maintain adequate

levels of capitalization. Capital adequacy is very useful for a bank to conserve & protect

stakeholders‟ confidence and prevent the bank from bankruptcy. Reserve Bank of India

prescribes banks to maintain a minimum Capital to risk-weighted Assets Ratio (CRAR) of 9 %

withregard to credit risk, market risk and operational risk on an ongoing basis, as against 8 %

prescribed in Basel documents. To measure capital adequacy five major indicators can be

analysed:

3 CA. Ruchi Gupta, An Analysis of Indian Public Sector Banks Using Camel Approach, IOSR Journal of Business and Management (IOSR-JBM, Volume 16, Issue 1, Ver. IV (Jan. 2014), PP 94-102

Page | viii

a) Capital adequacy ratio

b) Debt equity ratio

c) Coverage ratio

d) Advances to assets

e) Government Securities to Total Investments (%)

Basing upon these factors, and on the basis of group averages of five sub-parameters of capital

adequacy, Canara Bank was at the top position with group average of 6.167, followed by Andhra

Bank (6.50) and Bank of Baroda (6.50). United Bank of India stood at the last position due to its

poor performance in CAR, Advances to assets and also due to less investment in Govt.

Securities. 4

II. ASSET QUALITY

Asset quality determines the healthiness of financial institutions against loss of value in the

assets as asset impairment risks the solvency of the financial institutions. The weakening value

of assets has a spillover effect, as losses are eventually written-off against capital, which

eventually expose the earning capacity of the institution. With this framework, the asset quality

is assessed with respect to the level and severity of non-performing assets, adequacy of

provisions, distribution of assets etc.

To measure the Asset quality major indicators are:

a) Net NPA to Net Advance (%)

b) Net NPA to Total Assets (%)

c) Total Investments to Total Assets

d) Standard Advances to Total Advances

On the basis of group averages of sub-parameters of assets quality, Bank of Baroda had the

highest group average of 7.25, followed by Syndicate Bank (9) and Andhra Bank (9).Allahabad

Bank (23.5) was positioned last in terms of assets quality. 5

4 CA. Ruchi Gupta, An Analysis of Indian Public Sector Banks Using Camel Approach, IOSR Journal of Business and Management (IOSR-JBM, Volume 16, Issue 1, Ver. IV (Jan. 2014), PP 94-1025 Ibid

Page | ix

III. MANAGEMENT EFFICIENCY

Management efficiency, another indispensable component of the CAMEL framework, means

adherence to set norms, knack to plan and be proactive in the dynamic environment, leadership,

innovativeness and administrative competence of the bank.

Parameters to measure management efficiency are:

a) Business Per Employee

b) Profit Per Employee

c) Credit Deposit Ratio

d) Return On Net Worth (%)

On the basis of group averages of 4 sub-parameters of Management Quality, Andhra Bank was at

the top position with group average of 5.75, followed by Bank of Baroda (6.5), Corporation

Bank (6.75) and Punjab National Bank (8.25). Indian Overseas Bank (17.5), Vijaya Bank

(19.75), Bank of Maharashtra (20.75) and Central Bank of India (22.25) were at the last position

due to its poor performance in ROE, CD ratio and PPE. 6

IV.EARNING QUALITY

The quality of earnings represents the sustainability and growth of future earnings, value of a

bank’s lucrativeness and its competency to maintain quality and earn consistently. Earnings and

profitability are examined as against interest rate policies and adequacy of provisioning. The

single best indicator used to gauge earning is the Return on Assets (ROA), which is net income

after taxes to total asset ratio.

Major parameters for measuring earning quality of a bank are:

a) Return On Assets

b) NIM to Total Assets (%)

c) Operating Profit to Total Assets

d) Interest Income to Total Income

On the basis of group averages of 4 sub-parameters of Earnings Quality, Andhra Bank and

Indian bank was at the top followed by Punjab National Bank and State bank of Hyderabad.

6 Supra Note 3

Page | x

IDBI bank was at the last position due to poor performance in NIM to total assets and operating

profits to total assets followed by Central Bank of India, Vijaya, UCO and United bank of India.7

V. LIQUIDITY

In case of an adequate liquidity position, the institution can obtain sufficient funds, either by

increasing liabilities or by converting its assets to cash quickly at a reasonable cost.

The following parameters are used to measure liquidity:

a) Liquid Assets to total Assets (%)

b) Government securities to Total Assets (%)

c) Liquid Assets to Total Deposits (%)

d) Liquid Assets to Demand Deposits (%)

On the basis of group averages of 4 sub-parameters of Liquidity, Bank of Baroda was at the top

followed by Oriental bank of commerce, Bank of India and Canara bank. State bank of Mysore

bank was at the last position followed by Bank of Maharashtra and Union bank of India. 8

Composite Rating under CAMELS Rating Framework

To calculate composite ranking the group ranking calculated previously on the basis of various

parameters and the overall performance is assessed. At present, on the basis of group averages of

4 sub-parameters of Liquidity, Bank of Baroda was at the top followed by Oriental bank of

commerce, Bank of India and Canara bank. State bank of Mysore bank was at the last position

followed by Bank of Maharashtra and Union bank of India. 9

RBI’S STANCE FOR NEW BANK RATING SYSTEM

Recently in 2012, RBI has introduced a new rating system in order to make the process more

forward-looking. The move comes against the backdrop of the risks that have emerged after the

global financial crisis of 2008, with lenders shifting from offering traditional products to more

complex ones.

7 Supra Note 38 CA. Ruchi Gupta, An Analysis of Indian Public Sector Banks Using Camel Approach, IOSR Journal of Business and Management (IOSR-JBM, Volume 16, Issue 1, Ver. IV (Jan. 2014), PP 94-1029 Ibid

Page | xi

The country’s financial sector would now be evaluated under a dynamic risk-based mechanism,

an aspect the present CAMELS rating system lacked, central banking sources said. RBI proposes

to replace CAMELS with INROADS (Indian Risk-Oriented and Dynamic Rating System) from

the next round of annual financial inspection, in 2013. RBI has argued that the present form of

rating captures only a few risk elements and represents a bank’s past-year performance. Besides,

it is of the view that the present rating does not capture the risks that could cause a bank to fail.

RATING OF INDIAN BANKING BY EXTERNAL NATIONAL AND INTERNATIONAL

RATERS [2011-2014]

Rating Outlook 2014

International credit rating agency Fitch Ratings on Wednesday retained its long-term rating on

nine Indian banks, even as it flagged the risk of high non-performing assets (NPA) of public

sector banks. The Long-Term Issuer Default Ratings (IDR) on State Bank of India (SBI), Bank

of Baroda, Bank of Baroda New Zealand (BOB NZ), Punjab National Bank, Canara Bank, IDBI

Bank, ICICI Bank and Axis Bank have been affirmed at 'BBB-' while Indian Bank has been

affirmed at 'BB+'. The Outlook on the IDRs is Stable. The Indian banking sector faces a

challenging economic environment; although the new government's clear electoral mandate gives

it the ability to pursue far-reaching economic reforms. Uncertainties and risks remain regarding

implementation of key policies necessary to achieve the government's growth and fiscal deficit

targets. Fitch has increased its real GDP growth forecast for the financial year ending March

2016 (FY16) to 6.5 percent from 6.0 percent and projects real GDP growth to pick up to 5.5

percent in FY15 from 4.7 percent in FY14. Asset quality at state-owned banks remains under

pressure, while certain large banks' non-performing loans (NPLs) and restructured loans have

grown at a slower pace in the recent two quarters. Early signs of deleveraging in the corporate

sector are encouraging. However, a recent court ruling that the government's allocations of coal

assets in 1993-2009 were illegal has cast a shadow on asset quality.10 However, the impact of the

ruling may be less onerous than expected if productive assets are allowed to continue operating

without disruption. Fitch expects the pressure on asset quality at the rated banks to persist for

another couple of quarters. The banks, particularly the state-owned ones, will increasingly focus

10 Abhijit Lele & Neelasri Barman, Day after Coalgate verdict: Rating agencies put banks, firms under scanner, Business Standard, September 26, 2014

Page | xii

on raising capital to meet more stringent capital requirements under the Basel III regulatory

framework, which will be progressively implemented in India.11

However, Fitch pointed out that asset quality in state-owned banks remains under pressure

though the additions in NPAs and restructured loans have slowed in the last two quarters. “Early

signs of deleveraging in the corporate sector are encouraging. However, a recent court ruling that

the government’s allocations of coal assets in 1993-2009 were illegal has cast a shadow on asset

quality,” Fitch said referring to a recent Supreme Court order, which declared coal mines

allocated during that period illegal exposing the bank loans to the companies owning them to a

default. The agency however added that the impact of the apex court’s order “may be less

onerous than expected if productive assets are allowed to continue operating without disruption.”

Fitch expects the pressure on asset quality at the rated banks to persist for another couple of

quarters. “The banks, particularly the state-owned ones, will increasingly focus on raising capital

to meet more stringent capital requirements under the Basel III regulatory framework, which will

be progressively implemented in India,” Fitch said. Ratings of the large banks namely State Bank

of India (SBI), Bank of Baroda, Punjab National Bank, Canara Bank, IDBI Bank, and ICICI

Bank have been driven by Fitch’s expectation that these banks “are highly likely to receive

extraordinary support from the Indian government, if needed, due to their high systemic

importance”. The state-owned Indian Bank was rated lower, reflecting the “moderate probability

that it would receive extraordinary support from the Indian government, if needed, because of its

moderate systemic importance stemming from its smaller size and more regional character,”

Fitch said. The agency added that though the clear electoral mandate for Narendra Modi-led

government has given it the ability to pursue “far-reaching economic reforms ... uncertainties and

risks remain regarding implementation of key policies necessary to achieve the government’s

growth and fiscal deficit targets”. Fitch expects India’s GDP growth to improve to 5.5% in fiscal

ending March 2015 and further to 6.5% in March 2016 from 4.7% in March 2014.12

11 Reuters, Fitch affirms 'BBB-' rating on 9 Indian banks, Money Control, September 03, 2014, Available at http://www.moneycontrol.com/news/economy/fitch-affirms-bbbrating9-indian-banks_1169957.html?utm_source=ref_article12 Joel Rebello, Fitch retains ratings on nine Indian banks’ flags NPA risk, Hindustan Times, September 03, 2014, Available at http://www.livemint.com/Industry/9Z2c5QzvXUDRXPG1WtXh2N/Fitch-retains-ratings-on-nine-Indian-banks-flags-NPA-risk.html?utm_source=copy

Page | xiii

Key Rating Drivers’ Analysis - IDRs, Support Rating (SR) and Support Rating Floor

(SRF):

The Long-Term IDRs of SBI, Bank of Baroda, Punjab National Bank, Canara Bank, IDBI Bank,

and ICICI Bank are at their SRFs of 'BBB-'. The ratings are driven by their SRs of '2', which

reflects Fitch's expectation that they are highly likely to receive extraordinary support from the

Indian government, if needed, due to their high systemic importance and the government's

majority ownership in all except ICICI Bank. Indian Bank - which is also state-owned - has an

IDR and an SRF that are a notch lower than the large state-owned banks', driven by its lower SR.

Indian Bank's SR of '3' reflects the moderate probability that it would receive extraordinary

support from the Indian government, if needed, because of its moderate systemic importance

stemming from its smaller size and more regional character. Axis Bank's IDR is driven by its VR

at 'bbb-' while its SRF and SR are lower at 'BB+' and '3', respectively, mainly due to its private

ownership. The Viability Ratings (VRs) of SBI, ICICI Bank, Axis Bank and Indian Bank are at

the same level as their IDRs and therefore, act as drivers for their long-term ratings. BOB NZ is a

fully owned subsidiary of Bank of Baroda and its IDR is driven by expectations of high support

from its parent, Bank of Baroda, due to the various explicit and implicit linkages with the parent.

Key Rating Drivers’ Analysis – VRS:

The VRs of certain banks will continue to be under pressure, but the affirmations on their VRs

factor in efforts to raise capital and the expectation that asset quality would not deteriorate

materially from current levels and reach their worst during the current financial year. SBI, ICICI

Bank and Axis Bank are the only ones among Fitch's rated Indian banks to have investment-

grade VRs of 'bbb-', reflecting their superior stand-alone credit profiles. The drivers for the

private banks' (ICICI Bank and Axis Bank) VRs are their strong capital metrics, better-than-

average asset quality, good profitability, robust funding profile and better management quality.

ICICI Bank has had a consistently strong capitalisation track record while Axis Bank has

managed its asset quality better and made notable improvements to its capitalisation and retail

funding. SBI, whose financial metrics are not as strong as ICICI Bank's and Axis Bank's,

benefits from its large scale and status as a quasi-sovereign entity, which results in a solid

funding profile and strong access to capital markets. A fresh equity injection of INR100bn

(USD1.7bn) in FY14 in the bank has helped to replenish its capital buffers and raised its Fitch

core capital (FCC) ratio to 10.5% in FY14 from 9.9% in FY13. The bank plans to raise another

Page | xiv

INR200bn (17% of FY14 equity) over the next two years, which should hold capital buffers

steady. The stressed assets ratio improved to 8.3% in 1QFY15 from 8.4% in FY14. The VRs of

Bank of Baroda, Canara Bank and Punjab National Bank are rated one notch lower at 'bb+',

although Bank of Baroda's performance has been better than the other two in terms of

capitalisation and exposure to stressed business sectors. Capital buffers for all three banks remain

stretched, particularly at Canara Bank and Punjab National Bank, which was a key factor in the

VR downgrades for all three in 2013 and 2012. Canara Bank's exposure to stressed sectors is

among the highest in its peer group although its stressed asset ratio (9.5% in 1QFY15 up from

9.2% in FY14) is lower than state banks' average of 12% (FY14). The ratio continued to rise

even though total loans rose by 22% in FY14. The VR affirmation reflects expectations that

Canara Bank will raise additional equity. Although Punjab National Bank is more profitable than

its peers, its capital buffers are thinner compared with its stressed assets stock of around 15% of

total assets, the highest among the rated banks. The bulk of the stressed assets are restructured

loans. Although the growth in restructured loans has slowed recently, its NPL ratio rose to 5.5%

in 1QFY15 from 5.3% in FY14. Indian Bank's VR, which was also downgraded in 2013, reflects

concerns about its rising stressed asset ratio (1QFY15: 11.9%), which are partly offset by its

better capitalisation (FCC ratio of 12.6% in FY14) and slower loan growth. IDBI Bank's VR is

the lowest among the rated banks, and it is the most vulnerable to a downgrade given rapid

deterioration in the stressed asset ratio to 14.5% in 1QFY15 from 9% in FY13 and 14.1% in

FY14, and a very thin capital buffer (FCC ratio of 8% in FY14). The bank has sharply slowed

loan growth to focus on asset quality issues and is simultaneously seeking to raise capital. Fitch

will view efforts to strengthen its capital buffers positively because the agency expects asset

quality pressures to persist into FY15.

Key Rating Drivers’ Analysis - Senior Debt, Upper Tier 2 Debt And Hybrid Tier 1 Debt

The senior debt ratings of SBI, Bank of Baroda, IDBI Bank, ICICI Bank, Axis Bank and Canara

Bank are at the same level as the IDRs as the debts represent unsecured and unsubordinated

obligations of the banks. Legacy Upper Tier 2 bonds are rated four notches below the VR for

ICICI Bank, and three notches below the VR for Bank of Baroda and Canara Bank. The notching

is in accordance with Fitch's assessment of each instrument's non-performance and loss-severity

risk profiles. These subordinated debts are legacy instruments that are not Basel III-compliant.

SBI's legacy perpetual Tier 1 bonds are rated five notches below its VR in accordance with

Page | xv

Fitch's assessment of the instrument's non-performance and relative loss-severity risk profile.

This legacy hybrid debt is not Basel III-compliant.

Rating Sensitivities - IDR and Senior Debt

The VRs on Bank of Baroda, Punjab National Bank, Canara Bank, IDBI Bank and Indian Bank

are lower than their SRFs and their IDRs may be downgraded if factors underpinning the SRFs

weaken. For SBI and ICICI Bank, where the VRs and SRFs are at the same level, their IDRs

would only be downgraded if both the SRFs and the VR were to be downgraded. A downgrade

of India's sovereign rating (BBB-/Stable) will trigger a downgrade of all the banks' IDRs, which

are currently at the same level as the sovereign. Likewise, a change in the sovereign's outlook

will also lead to a revision of the outlooks on banks' IDRs. Axis Bank's IDR is solely driven by

its VR and a downgrade to its VR, while unlikely in the near-term, will lead to a downgrade to

its IDR. Any changes in the banks' IDRs would result in equivalent changes in their senior debt

ratings.

Rating Sensitivities - VR, Upper Tier 2 Debt and Hybrid Tier 1 Debt

The 'bbb-' VRs of the private banks, ICICI Bank and Axis Bank, are sensitive to any major

change in the operating environment and unexpected asset quality deterioration. However, the

VRs will be stable as long as the banks maintain adequate capital buffers. Axis Bank's VR would

move down if the sovereign is downgraded. The VR of ICICI Bank may move up in tandem with

an upgrade and would move down in line with a downgrade of the sovereign rating. SBI's VR is

sensitive to unexpected deterioration in capitalisation and/or asset quality. Fitch views the recent

capital injection in the bank positively as profitability will take time to recover. Periodic and

adequate capital injections will be important in supporting the VR. The VR of SBI will be also

sensitive to downward movement in the sovereign rating or outlook. The VRs of Bank of

Baroda, Canara Bank, Punjab National Bank and Indian Bank are sensitive to rising pressures on

capitalisation and asset quality, though Bank of Baroda's VR enjoys some support at the current

level due to better capital metrics than peers and signs of improvement in asset quality. The VRs

of Canara Bank and Indian Bank factor in capital increases, the absence of which could

undermine capital buffers if asset quality continues to weaken sharply. Punjab National Bank's

VR has very limited tolerance and any material deterioration from current levels of its asset

quality, if not matched by adequate capital reinforcement, will likely lead to its VR being

Page | xvi

reassessed. Capital management is most critical for IDBI Bank's VR in light of continuing

pressure on asset quality and earnings. Downward pressure on the VR could emerge if the

pronounced deterioration in stressed assets continues without adequate additions to capital and/or

the bank's funding mix tilts towards more volatile bulk deposits and certificates of deposit (CDs).

The Upper Tier 2 and hybrid Tier 1 debt are all notched down from the VRs and will be sensitive

to any change in the VRs.

Rating Sensitivities - SRs and SRFs

The SRs and SRFs are determined by the agency's assessment of the government's propensity

and ability to support a bank determined by its relative size and systemic importance. A change

in the government's ability to provide extraordinary support due to a change in the sovereign

ratings would affect the SRs and SRFs. The SRs and SRFs will also be impacted by any change

in the government's willingness to extend timely support.13

IRR’s Analysis of Fitch Overview

India Ratings & Research said on Thursday that banks in the country would largely remain

resilient to the cyclical downturn, on improvement in loan loss reserves and common equity

injections in 2014. Banks will largely remain resilient to the cyclical downturn on improvement

in loan loss reserves and common equity injections. These factors will help banks maintain

adequate defenses. They underline a stable outlook for the sector in 2014. However banks

continue to face credit quality pressures from loan concentration, borrowers’ over-leverage and

the prevailing economic slowdown.

The portfolio of stressed assets — gross non-performing assets plus standard restructured assets

— is expected to grow from about 10.25 per cent at the end of September 2013 to 14 per cent by

March 2015. In a base case scenario, the return on assets of public sector banks will continue to

trend 15-20 basis points lower than the long-term average of 0.9 per cent. But it will still be

adequate to absorb rising credit costs without impacting capital for most banks, the rating agency

said.

Corporate borrowers, however, have limited resilience to further shrinkage in profit margins. A

pick-up in real economic growth might improve cash flows from mid-2014. But, any failure in

13 Reuters, Fitch Affirms Ratings on 9 Indian Banks; Pressure on Asset Quality, September 03, 2014, Available at http://in.reuters.com/article/2014/09/03/fitch-affirms-ratings-on-9-indian-banks-idINFit74036220140903

Page | xvii

this revival and further increase in interest rates might result in a wave of failed restructuring.

It might test the profits of a broader base of government banks and some of the weak private

banks. Regulatory measures are forcing banks to improve loan loss reserves on restructured loans

and exposure to companies with large unhedged foreign exchange liabilities. These are expected

to boost the total loan loss reserves (specific and general) of the system to nearly 70 per cent of

gross NPAs on a sustained basis from the current level of 63 per cent. This will also improve the

cyclical resilience of banks. But it will still be adequate to absorb rising credit costs without

impacting capital for most banks, rating agency said.14

Rating agency Fitch has downgraded the viability rating of Punjab National Bank, Bank of

Baroda and Indian Bank from ‘bbb-’ to ‘bb+’, citing deteriorating asset quality and higher

provisioning for stressed assets portfolios.

Revenue growth was slowing due to lower loan growth and the margins were squeezed due to

high funding costs; this had led to pressure on internal capital generation, Fitch said.

It also cut Chennai-based Indian Bank’s long-term (LT) issuer default rating (IDR) from ‘BBB-‘

to ‘BB+’. The agency affirmed the LT IDRs of State Bank of India (SBI), Canara Bank, IDBI

Bank, ICICI Bank and Axis Bank at ‘BBB-’. Following the rating action, the outlook on the

IDRs of the nine banks is stable.

Fitch also affirmed the viability ratings of SBI, ICICI Bank and Axis Bank at ‘bbb-’, Canara

Bank at ‘bb+’ and IDBI Bank at ‘bb’.

The rating actions follow a review of the Indian banking sector against the backdrop of sharp

deceleration in economic growth and Fitch’s expectation of further deterioration in asset quality.

The economic slowdown was likely to be more protracted than initially expected, owing to the

currency volatility in recent months and the persistent high inflation, Fitch said in a statement.

The asset quality of Indian banks (particularly state-owned ones) would worsen, the rating

agency said, adding this might result in more stressed assets than initially estimated; such assets

would peak in FY15, rather than this financial year. The equity buffer of many public sector

14 India Ratings maintains 'stable' outlook on Indian banks, Business Standard, January 31, 2014, Available at http://www.business-standard.com/article/finance/india-ratings-maintains-stable-outlook-on-indian-banks-114013001207_1.html

Page | xviii

banks seemed increasingly stretched compared to their private peers, despite regular capital

injections from the government, it said.

At the end of June this year, the stressed asset books (gross non performing loans and

restructured loans) of Indian banks stood at 10 per cent of loans. Non-performing assets stood at

3.9 per cent.

Fitch said the outlook for the agriculture sector had improved following a good monsoon, and

this would provide some cushion to the expected decline in growth. Stress tests show most public

sector banks are sensitive to further deceleration in economic growth, owing to their high

exposure to the infrastructure and cyclical sectors, as well as their high foreign-currency lending.

For private banks, earnings and capital buffers were at levels significantly higher than those at

their state-owned counterparts.15

Global ratings agency Fitch on Monday took negative ratings actions against three Indian banks,

Punjab National Bank, Bank of Baroda and Indian Bank, downgrading long term and viability

ratings by one notch each.

Fitch Ratings downgraded Indian Bank's Long-Term issuer default rating (IDR) to 'BB+' from

'BBB-' and its viability rating (VR) to 'bb+' from 'bbb-', a release from the agency said. It also

downgraded PNB and BOB's VR by one notch to 'bb+' while affirming their long term IDRs at

'BBB-'.

At the same time, it also affirmed long term ratings of State Bank of India, Canara Bank, IDBI

Bank, Bank of Baroda New Zealand, ICICI Bank and Axis Bank at 'BBB-'.

Following the rating actions, Fitch has maintained the outlook on the IDRs for the nine banks as

stable. "The rating actions follow a review of the Indian banking sector against the backdrop of

sharp deceleration in economic growth and Fitch's expectation of a further deterioration in asset

quality," it said. "The economic slowdown is likely to be more protracted than Fitch initially

expected because of the currency volatility in recent months and persistent high inflation. Fitch

expects that asset quality at Indian banks (particularly state-owned ones) will worsen, resulting in

15 Business Standard, Fitch cuts viability ratings of PNB, BoB, Indian Bank, September 24, 2014, Available at http://www.business-standard.com/article/finance/fitch-cuts-viability-ratings-of-pnb-bob-indian-bank-113092300840_1.html

Page | xix

a larger amount of stressed assets than initially forecast and the amount would peak only in FY15

(fiscal year ending March 2015) rather than this current financial year," it said.16

Rating Outlook 2013

Moody's Investors Service downgraded the subordinated debt (subdebt) and junior subordinated

debt ratings of 11 Indian banks in 2013. The banks' senior obligation ratings and their stand-

alone baseline credit assessments were not affected. The banks involved 8 PSBs and 3 Private

sector banks.

Moody's removed one to two notches of the two to three notches systemic support uplift

previously incorporated in the public sector banks' subdebt and junior subdebt ratings,

concluding a review started on 3 June 2013. Moody's also removed the one notch support uplift

incorporated in the private sector banks' subdebt and junior subdebt ratings.

The ratings given by Moody’s were:

Public Sector Banks Deposits Rating BFSR Rating

Bank of Baroda Baa3 stable D/BCA ba2 negative

Bank of India Baa3 stable D/BCA ba2 negative

Canara Bank Baa3 stable D/BCA ba2 negative

IDBI Bank Ltd Baa3 stable D-/BCA ba3 stable

Indian Overseas

Bank

Baa3 negative D-/BCA ba3 negative

State Bank of India Baa2 stable D+/BCA ba1 stable

Syndicate Bank Baa3 stable D/BCA ba2 negative

Union Bank of India Baa3 stable D/BCA ba2 negative

Table 03: Public Sector Banks’ Ratings

Source: Moody’s Investors Service

Private Sector Bank Deposits Rating DFSR Rating

Axis Bank Limited Baa2 stable D+/BCA baa3 stable

16 Fitch Ratings downgrades three Indian banks, Times of India, September 24, 2014, Available at http://timesofindia.indiatimes.com/business/india-business/Fitch-Ratings-downgrades-three-Indian-banks/articleshow/22953269.cms

Page | xx

HDFC Bank

Limited

Baa2 stable D+/BCA baa3 stable

ICICI Bank Limited Baa2 stable D+/BCA baa3 stable

Table 04: Private Sector Banks’ Ratings

Source: Moody’s Investors Service

Ratings Rationale

Moody's downgrade reflects the increasing international trend of imposing losses on holders of

subdebt securities (creditor "bail-in") as a pre-condition for distressed banks to receive

government support. As a consequence, Moody's assumes that Indian government support is less

likely to be forthcoming for the holders of such securities.

"The global financial crisis has demonstrated that support can be provided selectively, with the

costs being shared with subordinated creditors of a bank, without triggering any contagion, as it

was previously feared", says Gene Fang, a Vice President at Moody's.

Moody's analysis observes that India has a modern and progressive approach to bank regulation.

There is no explicit legal power allowing Indian regulators to selectively impose losses on

subdebt holders outside of a liquidation process. However, as a member of the G20 and Financial

Stability Board (FSB), India could move towards adopting a bank resolution framework which

imposes losses on subordinated debt holders.

On balance, Moody's assumes that Indian government support will be less likely in the future.

Nevertheless, we believe for public sector banks a high probability of support is still justified,

resulting in a one notch subdebt rating uplift. This is an exception to the general assumption in

our methodology that support should be removed from subordinated debt ratings. In contrast, we

assume that the probability of support for private sector banks is now low-to-moderate from high

before, which is no longer sufficient to result in a rating uplift at their current baseline credit

assessments.17

17 Moody's downgrades 11 banks' subdebt ratings in India on increased bail-in risk, Moody’s Investors Service, Global Credit Research, 05 Sep 2013, Available at https://www.moodys.com/research/Moodys-downgrades-11-banks-subdebt-ratings-in-India-on-increased--PR_281098

Page | xxi

Fitch India expected Indian banks to benefit from an expected cyclical uptrend in the domestic

economy during 2013-2014. Its rating outlook on Indian Banks was more ‘stable’ oriented than

‘negative’. But it did not rate any bank ‘positive’ trend.

As per India Ratings the ratings of prominent banks were as follows:

Page | xxii

Challenges before Indian Banks:

Indian banks had a lot of things going against them, from a slowing economy and rising loan

defaults to allegations of money laundering. A few banks had, however, faced the headwinds

strongly. After a gap of five years, HDFC Bank emerged as the best large bank because of good

asset quality, high loan growth, a healthy capital adequacy ratio and an improvement in returns

on capital employed. YES Bank remained the best mid-sized bank for the second year running.

For other banks, challenges were only multiplying.

The asset quality of banks was deteriorating for the

past two years as economic growth slipped to its

lowest level in a decade while inflation and interest

rates remained high. Gross bad loans had spiked to

nearly four per cent of total lending from 2.36 per

Page | xxiii

cent three years ago. The Reserve Bank of India estimates gross bad loans to touch 4.4 per cent

by the end of the current fiscal year.

More debt would have turned sour had banks not restructured stressed corporate loans. The

banking system's restructured assets are at an alarmingly high level of more than six per cent.

Punjab National Bank (PNB), Central Bank of India and Allahabad Bank all have outstanding

restructured assets at more than 10 per cent.

In an interview with Business Today, RBI Governor Raghuram Rajan emphasised on speeding

up the loan recovery process through debt recovery tribunals and asset reconstruction companies.

"Our institutions dealing with distress are under-developed. That will make it hard for banks to

take risks if they have no hope for recovery. We have to improve them," he said.

The deteriorating asset quality is putting

tremendous pressure on banks' capital

base. The Basel-III regulations require

banks to set aside more capital for

absorbing future liquidity shocks or any

risk arising in the financial system.

According to the RBI, Indian banks are

likely to raise Rs 2.7 trillion of tier-I

equity capital in the next five years.

The capital adequacy ratio at

many state-run banks such as

PNB, Bank of India, Andhra

Bank and Union Bank of India

was closer to the RBI's minimum

norm of nine per cent. This

leaves them with little room to

breathe easy.

Page | xxiv

M.S. Raghavan, Chairman and Managing Director of IDBI Bank, said banks will see formidable

challenges to expansion when the Basel-III norms are fully implemented by 2018. "We will have

to keep generating incremental capital," he said.

The banking sector was also waking up to the challenges of funding infrastructure projects.

These projects were earlier the domain of development financial institutions like the Industrial

Development Bank of India and Industrial Credit and Investment Corporation of India, the

former avatars of IDBI Bank and ICICI Bank respectively.

With the government and private sector looking to invest billions of dollars to build roads, power

plants and ports, many banks ramped up their exposure to the sector. Loans to these projects are

typically for the long term, say 20 years. But most funds that banks raise are shorter in maturity

which resulted in a mismatch. Banks did not have the ability or the expertise to assess risk in an

infrastructure project. They needed be allowed to raise long-duration funds by issuing tax-free

bonds.

Banks started tightening their regulatory and governance structures, after a news portal exposed

their liberal attitude toward know-your-customer norms and anti-money laundering rules. They

must also improve efficiency, especially considering that competition in the sector is about to

intensify. The RBI decided to issue new banking licences.

Foreign banks, which curbed retail lending after the 2008 financial crisis, had cleaned their

balance sheets and were again looking to expand in India. The RBI said that if foreign banks

shift to a model where they set up wholly owned subsidiaries instead of the current branch

structure, it will treat them on nearly equal terms with local lenders.

The challenges aside, there have been several welcome developments in the banking sector over

the past few years. Private lenders are leveraging social media to engage customers and boost

brand visibility. In state-run banks, many women have entered the corner office. Many banks

were also looking to offer customized products to those who do not have access to the banking

system currently.

Page | xxv

Still, the road ahead for banks was a bumpy one. As competition intensifies, the existing banks

had to think of innovative strategies to retain customers.18

Rating Outlook 2012

In 2012, four years after the global financial crisis began, India's $1,508 billion (Rs 82.6 trillion;

a trillion is 100,000 crore) banking sector still grappled daily with heightened risk. Banks and

borrowers, both retail and corporate, were under financial stress.

Indian banks had shown resilience, as they had a buffer well over the required capital adequacy

ratio of nine per cent. This helped them absorb near term shocks, but deteriorating asset quality

and slow economic growth were hurting the profitability.

The industry's performance parameters were sobering: the growth rate for deposits has crashed

from 23 per cent in 2007/08 to 15 per cent in 2011/12. Loans and advances growth has fallen

from 25 to 18 per cent. Net non-performing assets (NPAs) had risen from one per cent to 1.28

per cent.

Return on assets was down from 1.12 per cent to 1.08 per cent. The regulations increasingly

required banks to set aside more capital. The Basel III norms, to be implemented beginning

January 2013, will require massive capital infusion by Indian banks in a phased manner.

The high incidence of corporate debt restructuring in the last couple of years may add to the

NPAs in the system. Provisioning for NPAs has risen from Rs 54,000 crore in 2010/11 to Rs

74,700 crore in 2011/12.

All these developments will increase pressure on profitability, although Basel III will go a long

way in building a strong foundation for the Indian banking sector. All in all, the negatives far

outweigh the positives.19

The Indian banking sector had been insulated from the global banking crisis of 2008, but the

industry regulator was concerned about important large institutions whose failure could put the

18 Anand Adhikari, India's Best Banks 2013, Business Today, December 03, 2013, Available at http://businesstoday.intoday.in/story/best-banks-2013-india-banking-sector-intro/1/200612.html19 Fitch Retains BBB- Ratings for Indian Banks, Yahoo Finance, September 04, 2014, Available at https://in.finance.yahoo.com/news/fitch-retains-bbb-ratings-indian-173956507.html

Page | xxvi

entire sector at risk. When this happened globally, governments had to infuse vast amounts of

capital to save large institutions.

As for risk management, the 2008 crisis highlighted the prudence of banks in India, which

remained unscathed. Over the last two decades, net NPAs have fallen. The sudden increase after

2008, while not alarming, is best nipped in the

bud by both banks and regulators. The

corporate debt restructuring mechanism is full

of loopholes, though.

In this environment of gloom hope came when

Finance Minister P. Chidambaram asked the

RBI to speed up the process of issuing fresh

banking licences.20

The main highlights of the Banking sector performance as per ICRA21 are:

Year-on-year (yoy) credit growth moderated to 18.9% as on December 31, 2011 for the 42

banks under review from 22.7% as on March 31, 2011 with corporate credit offtake losing

pace because of higher interest rates; average lending yields of the State Bank Group of

banks (SBI Group) increased by 140 basis points (bps) during the nine month period under

review, while other banks reported a

120 bps increase on an average.

The yield on advances began stabilising

in the third quarter (Q3) of 2011-12

(FY2012) after a sharp increase in the

first half (H1); the pace of credit

growth is likely to remain moderate

over the next few quarters.

The Gross Non-Performing Assets

(NPAs) of Nationalised Banks rose to

20 Anand Adhikari, India's Best Banks 2012, Business Today, December 09, 2012, Available at http://businesstoday.intoday.in/story/best-banks-2012-india/1/189851.html21 ICRA Rating Feature: Indian Banking Sector, ICRA, Q3 and 9M, FY2012 Performance Review and OutlookQuarterly Review February 2012, Available at http://www.icra.in/Files/ticker/Indian%20Banks-Note(Revised).pdf

Page | xxvii

2.4% of advances as on December 31, 2011 from 1.9% as on March 31, 2011, while those of

the SBI Group increased sharply to 4.3% from 3.0% during the same period; certain large

corporate slippages and a sharp increase in advances to the agriculture and small & medium

enterprise (SME) sectors was noted during the nine month period. The Gross NPAs of

private banks moderated to 2.1% of advances as on December 31, 2011 from 2.3% as on

March 31, 2011.

The share of restructured assets of Nationalised Banks continued to increase, and was up at

5.5% of the credit book as on December 31, 2011from 4.7% as on March 31, 2011; total

restructured assets of Nationalised Banks increased by about 30% while the SBI Group

reported a relatively moderate increase of 9% over the same period. Slippages out of

restructured portfolios continued to rise for Nationalised Banks during 9M,FY2012. Private

banks’ restructured assets also rose to 1% of advances, albeit on a smaller base.

Net NPAs in relation to Net Worth of the SBI Group weakened to 24.2% as on December 31,

2011 from 17.7% as on March 31, 2011 with NPAs increasing and provision coverage being

lower. For Nationalized Banks, ratio increased to 15.8% from 11.6% over the same period.

Private Banks continued to maintain a stable solvency profile at around 3% during the period

stated. Although difficulties in the operating environment may ease to an extent the fiscal

2013, large restructured accounts and structural weaknesses in some large exposures could

lead to a further increase in NPAs and therefore deterioration in the overall solvency profile

Page | xxviii

of banks. Implementation of some key policy initiatives could however avert a sharp

deterioration in asset quality.

The median Tier I capital of PSU banks moderated to 8.3% as on December 31, 2011 from

8.7% as on March 31, 2011 as the

number of banks with Tier I capital less

than 8% increased to 12 as on December

31, 2011 from four as on March 31, 2011

partly because of the non-inclusion of

unaudited profits for 9M, FY2012. ICRA

sees an improvement of 30-60 bps in the

overall Tier I capitalisation by March

2012 and expects the proposed capital infusion of around Rs. 20,000 crore into PSU banks by

the government in the current fiscal to likely support their medium-term growth.

Deposits growth remained steady during 9M, FY2012 with high term-deposit rates attracting

retail depositors. However, Nationalised Banks’ CASA1came under moderate pressure,

sliding down to 31.1% as on December 31, 2011 from 33.2% as on March 31, 2011. The

large private banks and the SBI Group were able to maintain stable CASA levels during the

period stated, while small private banks faced pressure on this front.

Increase in term deposit rates and hardening interest rates for most part of the year to

December 2011 led to an increase in the cost of funds to 6.7% in Q3 FY2012 from 5.7% in

Q4 FY2011. This level of cost is unlikely to reduce sharply even as systemic interest rates

could soften, given the significant share of fixed-rate, medium-term resources mobilised.

A few banks increased the interest rate on savings accounts and reported improved traction

on savings deposit mobilisations during the last few months. However, it is still too early to

assess the impact of this development at the industry level since most banks continue to

maintain the annual savings deposit rate at 4%.

Interest margins were stable during the 9M, FY2012 with the increase in funding costs being

passed on to borrowers. However, passing on of the benefit of lower incremental funding

costs would be a function of competition.

There was a marginal increase in aggregate provisioning levels during 9M, FY2012 mainly

because of loan-loss provisions. Going forward, an increase in provisions following possible

Page | xxix

deterioration in asset quality could impact the asset quality of the banking system over the

next few quarters.

Rating Outlook 2011

Global ratings firm Moody's on Wednesday downgraded the entire Indian banking system's

rating outlook from “stable” to “negative,” citing the likely deterioration in asset quality in the

months ahead. Only in September, Standard & Poor's (S&P) downgraded the country's largest

lender, the State Bank of India, by one notch.

Talking about the asset quality, the Asset growth trend in Banks in India has been declining since

2006 with little fluctuations as this graph given by ICRA shows:

Understandably, the Moody's decision — at a time when the Eurozone financial system is in

turmoil and a large number of European banks are in dire straits — evoked sharp reactions from

the government and bankers alike. While the government pooh-poohed the step as of “no

significance,” saying the country's lending institutions are much healthier than their global

counterparts, Indian bankers termed the move “unwarranted” and “premature” at this point of

time.

Page | xxx

The market, which is prone to knee-jerk reactions, apprehended that the downgrade by the

Moody's would render overseas borrowings costlier for Indian banks. The negative sentiment

sparked a major sell-off in banking stocks, resulting in the banking index on the Bombay Stock

Exchange tumbling by 2.62 per cent.

Arguing its case for the outlook downgrade in the wake of the economic growth slowdown that

could impact the asset quality and profitability of the Indian banking sector, the Moody's said:

“with asset quality, given the tightening environment, we anticipate that it will deteriorate over

the next 12-18 months, thereby causing an increase in provisioning needs for the banks in FY'12

and FY'13.”

The government sought to brush aside the Moody's prognosis as a non-issue. “We are not

concerned. We are not affected by the downgrade. Looking at how the global banks are faring,

we are much stronger and the ratings have no significance,” Financial Services Secretary D.K.

Mittal said.

Bankers were even more critical, if not sharper. Ostensibly, with the effect of his bank's

downgrade by S&P fresh in mind, SBI Chairman Pratip Chaudhuri pointed out that the health of

Indian banks was much better compared to their global lenders. “Perhaps they [rating agencies]

are stung by experience elsewhere. But otherwise I feel Indian banks are well-regulated. We

don't deal in exotic products. Also, the amount of leveraging is low, we do 12-14 times while the

best of European banks leverage up to 20 times,” he said.22

CONCLUSION

Due to radical changes in the banking sector in the recent years, the central banks all around the

world have improved their supervision quality and techniques. In evaluating the function of the

banks, many of the developed countries are now following uniform financial rating system

(CAMEL RATING) along with other existing procedures and techniques. Various studies have

been conducted in India as well on various banks using CAMEL framework. Different banks are

ranked according to the ratings obtained by them on the five parameters. The results show that

22 Ashok Das Gupta, Moody's downgrades rating of Indian banks, The Hindu, November 27, 2011, Available at http://www.thehindu.com/business/moodys-downgrades-rating-of-indian-banks/article2611668.ece

Page | xxxi

there is a statistically significant difference between the CAMEL ratios of all the Public Sector

Banks in India, thus, signifying that the overall performance of Public Sector Banks is different.

Also, it can be concluded that the banks with least ranking need to improve their performance to

come up to the desired standards.23

23 CA. Ruchi Gupta, An Analysis of Indian Public Sector Banks Using Camel Approach, IOSR Journal of Business and Management (IOSR-JBM, Volume 16, Issue 1, Ver. IV (Jan. 2014), PP 94-102

Page | xxxii

BIBLIOGRAPHY

1. Department of Banking Operations and Development (DBOD), Department of Economic

and Policy Research (DEPR), Banking Structure in India -The Way Forward, Discussion

Paper, Reserve Bank of India, August 2013, Available at

http://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/DPBS27082013_F.pdf

2. Indian Brand Equity Foundation, Banking Sector in India, Sectoral Report 2014,

Available at http://www.ibef.org/industry/banking-india.aspx

3. CA. Ruchi Gupta, An Analysis of Indian Public Sector Banks Using Camel Approach,

IOSR Journal of Business and Management (IOSR-JBM, Volume 16, Issue 1, Ver. IV

(Jan. 2014), PP 94-102

4. Abhijit Lele & Neelasri Barman, Day after Coalgate verdict: Rating agencies put banks,

firms under scanner, Business Standard, September 26, 2014

5. Reuters, Fitch affirms 'BBB-' rating on 9 Indian banks, Money Control, September 03,

2014, Available at http://www.moneycontrol.com/news/economy/fitch-affirms-

bbbrating9-indian-banks_1169957.html?utm_source=ref_article

6. Joel Rebello, Fitch retains ratings on nine Indian banks’ flags NPA risk, Hindustan

Times, September 03, 2014, Available at

http://www.livemint.com/Industry/9Z2c5QzvXUDRXPG1WtXh2N/Fitch-retains-ratings-

on-nine-Indian-banks-flags-NPA-risk.html?utm_source=copy

7. Reuters, Fitch Affirms Ratings on 9 Indian Banks; Pressure on Asset Quality, September

03, 2014, Available at http://in.reuters.com/article/2014/09/03/fitch-affirms-ratings-on-9-

indian-banks-idINFit74036220140903

8. India Ratings maintains 'stable' outlook on Indian banks, Business Standard, January 31,

2014, Available at http://www.business-standard.com/article/finance/india-ratings-

maintains-stable-outlook-on-indian-banks-114013001207_1.html

9. Business Standard, Fitch cuts viability ratings of PNB, BoB, Indian Bank, September 24,

2014, Available at http://www.business-standard.com/article/finance/fitch-cuts-viability-

ratings-of-pnb-bob-indian-bank-113092300840_1.html

10. Fitch Ratings downgrades three Indian banks, Times of India, September 24, 2014,

Available at http://timesofindia.indiatimes.com/business/india-business/Fitch-Ratings-

Page | xxxiii

downgrades-three-Indian-banks/articleshow/22953269.cms

11. Moody's downgrades 11 banks' subdebt ratings in India on increased bail-in risk,

Moody’s Investors Service, Global Credit Research, 05 Sep 2013, Available at

https://www.moodys.com/research/Moodys-downgrades-11-banks-subdebt-ratings-in-

India-on-increased--PR_281098

12. Anand Adhikari, India's Best Banks 2013, Business Today, December 03, 2013,

Available at http://businesstoday.intoday.in/story/best-banks-2013-india-banking-sector-

intro/1/200612.html

13. Fitch Retains BBB- Ratings for Indian Banks, Yahoo Finance, September 04, 2014,

Available at https://in.finance.yahoo.com/news/fitch-retains-bbb-ratings-indian-

173956507.html

14. ICRA Rating Feature: Indian Banking Sector, ICRA, Q3 and 9M, FY2012 Performance

Review and Outlook, Quarterly Review February 2012, Available at

http://www.icra.in/Files/ticker/Indian%20Banks-Note(Revised).pdf

15. Ashok Das Gupta, Moody's downgrades rating of Indian banks, The Hindu, November

27, 2011, Available at http://www.thehindu.com/business/moodys-downgrades-rating-of-

indian-banks/article2611668.ece

Page | xxxiv