Rupee slide to add to credit pressures on banks: Fitch

The depreciation in rupee's value would add to credit pressures on Indian banks, especially public sector lenders, because their stress-absorption capacity is comparatively lower than their private-sector peers, global rating agency Fitch said today.

"The sharp depreciation of the Indian rupee will add to credit pressures on Indian banks...Public sector banks remain under relatively greater pressure. This is because their (standalone) stress-absorption capacity is comparatively lower than their private-sector peers," it said in a statement.

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The rating agency, however added that as most public- sector banks' International Depository Receipt (IDRs) factor in support from the sovereign, the outlook at that level remains stable - in line with that of the sovereign.

The Indian rupee has depreciated by over 27 per cent against the dollar since April 30 (53.80). It closed at a record low of 68.80 yesterday.

The 27 per cent depreciation of the rupee since April 30 is likely to pressurise the financial performance of the Indian corporations with unhedged foreign-currency borrowing.

Fitch said the sharp weakening of the rupee, if not swiftly reversed, will delay any chances of recovery in domestic demand. A more prolonged deterioration in asset quality will also raise provisioning  requirements and weigh on banks' earnings profiles, Fitch said, adding: "Its (Fitch's) original estimates of stressed assets in the system peaking in FY14 would need to be revised, and is now likely to peak only in FY15."

Most recent RBI data on stressed assets for the system was 10 per cent of total loans. Fitch expects that overall, heightened credit pressures would add to concerns about capital adequacy for certain parts of the system.