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Fitch puts Sri Lanka's HDFC Bank on negative watch

Fitch Ratings placed the BBB national long-term rating of Housing Development Finance Corp. of Sri Lanka, or HDFC Bank, on Rating Watch Negative over concerns the Sri Lankan government will not raise the bank's capital to help it meet the minimum 5 billion Sri Lankan rupees requirement by Jan. 1, 2018.

Sri Lanka's government is the bank's controlling shareholder. Fitch said Aug. 10 that it would take HDFC Bank more than four years to generate the required capital from retained earnings. The bank's profitability, funding and liquidity could also be affected by business restrictions imposed by the Sri Lanka central bank, the rating agency noted.

In addition, Fitch expects HDFC Bank's asset and liability mismatches to persist due to its longer-tenor loan book and highly concentrated, short-tenor deposit base.

The rating agency said it will affirm the bank's rating and remove from Rating Watch Negative if the state provides 900 million rupees in additional capital required on or before the Jan. 1, 2018, deadline. On the other hand, it will downgrade the rating if the state does not raise the bank's capital by the deadline or if the deadline is extended.

As of Aug. 10, US$1 was equivalent to 153.30 Sri Lankan rupees.