Moody's Downgrades Long-Term Deposit Ratings For SBI, HDFC Bank

Marco Green
June 2, 2020

The outlook remains negative, it said.

Consequently, Moody's downgraded India's foreign-currency and local-currency long-term issuer ratings to Baa3 from Baa2.

Moody's Investor Service was also quick to add that while today's downgrade was taken in the context of the COVID-19 pandemic, it was not exclusively driven by the economic effects of the novel coronavirus.

RATINGS AGENCY Moody's Investors Service on Monday downgraded India's sovereign (foreign currency and local currency long-term issuer) ratings by a notch from Baa2 to Baa3, the lowest rating in investment grade, and maintained a negative outlook it had assigned a year ago.

The country's credit rating was downgraded to Baa3 from Baa2, according to a statement.

The rating agency stated that the stimulus measures announced by the Indian government and the RBI will only help mitigate some of the credit pressures.

Also, in the absence of external capital support from the Indian government, Moody's expects the capitalization of the PSBs to deteriorate.

Moody's predicted downgrades for more public sector banks (PSBs) as well. Issuer ratings of IRFC and HUDCO have also been lowered.

"The decision to downgrade India's ratings reflects Moody's view that the country's policymaking institutions will be challenged in enacting and implementing policies which effectively mitigate the risks of a sustained period of relatively low growth, significant further deterioration in the general government fiscal position and stress in the financial sector", the ratings agency said. According to Bloomberg, Fitch Ratings and Standard and Poor's now rate India one notch below Moody's.

It said the cut to Baa3 from Baa2 was not driven directly by the impact of the coronavirus but that the pandemic had amplified vulnerabilities in India's credit profile that were present and building prior to the shock. Bank of India had total assets of Rs.6.3 trillion, Canara Bank had assets of Rs.7.2 trillion and Central Bank of India reported total assets of Rs.3.5 trillion at 31 December 2019.

As for HDFC Bank, Moody's has downgraded its BCA to baa3 from baa2 given the strong linkages between the bank and the sovereign, including its large direct exposure to government debt and exposure to common underlying operating conditions, it said.

The rating outlook of Punjab National Bank too has been downwardly revised to stable from positive by Moody's, while the state-run lender's long-term local and foreign currency deposit ratings at Ba1 has been affirmed. The agency said that IndusInd's weak funding, as reflected by its high deposit concentration and low share of retail deposits, makes the bank more susceptible to dislocations in financial markets.

In the case of SBI, Moody's expects its asset quality and profitability to weaken, which could hurt its capitalization.

Other reports by Click Lancashire

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