Global credit rating agency Fitch Ratings on Tuesday said it has revised its outlook for Indian banking sector to "Negative" from "Stable" over mounting non-performing loans (NPL). The rating agency has downgraded the Viability Ratings of Canara Bank and IDBI Bank by one notch to "bb' and "bb-" respectively.
According to Fitch Ratings, the revision implies that there are more downside risks for bank Viability Ratings unless the risks of deteriorating asset quality and weak earnings are counterbalanced by sizeable capital infusions.
"Banking sector NPLs rose sharply in the financial year ended 31 March 2016 (FY16) as a result of stricter NPL recognition standards.
Asset quality could deteriorate further over the next 12-18 months given the banks' exposure to stressed sectors, such as infrastructure and iron and steel, and the difficult resolution process for stressed assets in the near term," it said. "Earnings for the sector are also likely to be weak due to muted loan growth and high credit costs," the credit rating agency added.
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According to Fitch Ratings, the revision implies that there are more downside risks for bank Viability Ratings unless the risks of deteriorating asset quality and weak earnings are counterbalanced by sizeable capital infusions. 
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