International ratings agency Moody's downgraded the bank financial strength ratings or BFSRs and the issuer ratings of some state-run banks viz. Bank of Baroda, Canara Bank and Union Bank.
Moody's also downgraded by one notch their local currency deposit ratings. While it affirmed the ratings of Union Bank of India, it changed the outlook on its BFSR to negative.
Moodys' made these downgrades considering the challenges of the current macroeconomic environment, which have been exacerbated by the depreciating rupee and high levels of inflation.
The agency affirmed the foreign currency deposit ratings for the three banks and a fourth public sector bank- and Punjab National Bank. Except for Punjab National Bank -whose BFSR has a stable outlook, the outlook on the BFSRs is negative for all other banks.
The recent steps by Reserve Bank of India failed to reverse the depreciation of rupee against dollar. Against such a backdrop, Moody's expects public sector banks in particular to find difficulty in responding to slower economic growth, deteriorating asset quality, and declining margins.