Moody’s upgrades ratings of four Indian banks

Moody’s upgrades ratings of four Indian banks

NEW DELHI: Close on the heels of India’s sovereign rating upgrade, Moody’s has upgraded four Indian banks to Baa2 from Baa3 – the same level as the Indian government. The four lenders are State Bank of India, HDFC Bank, Exim Bank and Indian Railway Finance Corporation.

The government’s credit strength is an important input in Moody’s deposit and debt ratings for financial institutions because it impacts Moody’s assessment of the government’s capacity to provide support lenders in times of stress. As such, an improvement in the government’s own creditworthiness, as measured by its sovereign rating, has lifted the supported ratings for EXIM India, IRFC and SBI.

“Prior to this rating action, HDFC Bank’s ratings were constrained by India’s previous sovereign rating of Baa3 given the bank’s significant exposure to the Indian government in common with other Indian banks. Upgrade of the sovereign rating also drove an upgrade of the bank,” the rating agency said. The stable outlook on the four financial institutions ratings is in line with the stable outlook on the Indian sovereign’s rating.

On the banking sector Moody’s has said that the credit conditions in the country continue to be weak but stable, with such a situation representing the key risk to the banks’ balance sheets. “Corporate leverage has started to fall and asset quality deterioration for the banks has peaked. Furthermore, the clean-up of balance sheets is underway, with the latest effort being the asset quality review conducted by the Reserve Bank of India in December 2015 and the promulgation of the Insolvency and Bankruptcy Code 2016,” said Moody’s in a statement.

According to the rating agency the capitalization profile of the public sector banks — a segment which accounts for nearly 70% of total banking system assets — remains far below that of their private sector peers. “To a large extent, the capital shortfall has been addressed by the government’s announcement on 24 October 2017 of a recapitalization plan for public sector banks, which should help facilitate these banks in writing down bad loans. However, the credit implication will depend on the hair-cuts that the banks will need to take in the resolution process and the developments in their other credit metrics after the process is complete,” the rating agency said.

On the positive side, funding and liquidity remains strong for banks. Also the liquidity comes from stable customer deposits with limited reliance on market funding.

Source by timesofindia..