Fitch Ratings Wednesday revised its outlook on 11 Indian financial institutions to negative from stable while affirming the rating. Fitch revised the outlook on the Indian Railway Finance Corporation Limited's (IRFC) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to negative from stable and affirmed the ratings at 'BBB-'.

The 11 financial institutions include six state-run banks (State Bank of India, Punjab National Bank, Bank of Baroda, Bank of Baroda (New Zealand) Limited, Canara Bank, IDBI Bank Ltd), two private banks (ICICI Bank Ltd and Axis Bank), two government-owned institutions (Export-Import Bank of India, Housing and Urban Development Corporation Ltd) and one infrastructure finance company (Infrastructure Development Finance Company Ltd).

In a press statement, the global ratings company said that the rating action follows Fitch's revision of the outlook on India's LT Foreign- and Local-Currency IDRs to Negative from stable. 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.

The rating agency has opined that the banks have reasonable customer deposit base, established domestic franchises and adequate capitalization but non-banks lack the funding advantage and are vulnerable to increased market volatility.

Pressures are building generally on the stand-alone credit profile of these institutions which will negatively impact VRs, given India's weakening economic and fiscal outlook, slowing business reforms and inflationary pressures that in turn could put further pressure on their future asset quality. VRs of banks with concentrated exposures to problematic sectors could be impacted more, the agency said.

Meanwhile, Fitch has affirmed IRFC's National Long-Term and Short-Term Ratings 'Fitch AAA (ind)' with a Stable Outlook and 'Fitch A1+ (ind)' respectively.

Fitch has also withdrawn the 'BBB-(exp)' rating assigned to IRFC's proposed USD300m bond, as the issuer has not yet finalized the bond documents. In FY12, Indian Railways reduced its initially proposed plan size, and hence IRFC did not borrow the proposed USD300m, it said.