It said its estimated capital requirement of USD 140 billion for the system may have to be reassessed, given the losses.
"The stand-alone credit profile of many Indian public sector banks should come under pressure unless there is meaningful action to restore capital adequacy," Fitch said.
It pointed to significant quarterly losses at several large public sector banks (PSBs) last week, including Bank of Baroda and Bank of India, underscoring long-standing balance-sheet and capital risks stemming from legacy issues pertaining to poor asset quality and weak provisioning.
The sudden deterioration in profitability at PSBs for the third quarter of 2015-16 was triggered mainly by higher provisioning following an RBI order on reclassification of troubled loans.
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RBI, in an attempt to help banks clean up their balance-sheets, has nudged them to identify stressed accounts and significantly raise provisioning over the two quarters to 2015-16.
It is "unusual" for RBI to be driving state-owned banks to raise provisioning so quickly, which indicates that earnings pressure will continue in the fourth quarter of this fiscal and possibly beyond, Fitch added.
"But the suddenness and speed of the provisioning in the second half of FY16 highlights how long it has taken to address poor balance-sheets. It also raises questions over the pace and implementation of bank recapitalisation and reforms, especially when central bank intervention is required in identification of bad assets," it added.
Fitch has long highlighted that provisioning at PSBs is weak and significant new capital is necessary to maintain credit profiles.