Analysts at Fitch have downgraded some of India's largest banks following a downgrade of India's outlook on Monday.
The company pointed out that the downgrade of banks does not necessarily shows weakness in banks themselves but it is due to the relationship between the government and the banking sector. State Bank of India and ICICI Bank were among the banks that were downgraded by the company.
It said, "The Outlook revision of the financial institutions reflects their close linkages with the sovereign by virtue of their high exposure to domestic counterparties and holdings of domestic sovereign debt."
Rajiv Mehta, analyst at IIFL said that the downgrade of banks is mainly due to Fitch's downgrade of its sovereign outlook for India. He said that macro factors like slowing growth, high inflation, weak currency and policy paralysis as well as disruption of investments, all have impact on the banks. He pointed out that banks are influenced with the economy and they also hold government papers as part of their balance sheets.
The company the there are some positive aspects relating to the banking sector like banks' reasonable customer deposit base, established domestic franchises and adequate capitalization.