Project loans have reduced as a share of total loans to 14 percent in 2012 from 58 percent in 2005.
"The downgrade reflects Fitch's expectation that NDB's risk profile will materially increase as a result of its changing business model, from being a well-capitalised, specialised project lender to a new entrant in a highly competitive domestic commercial banking sector," Fitch said in a statement.
"Its shift towards SME and retail lending will, in Fitch's opinion, materially alter the bank's risk profile, notwithstanding the diversification benefits provided by growth in these sectors."
Fitch said the bank's Tier 1 capital adequacy ratio (CAR) was strong at 18.8 percent by end 2012 up from 14.4 percent in 2011 helped by capital gains from the sale of an insurance subsidiary.
But Fitch said the ratio will reduce in the long-ter