Moody’s transforms Indian banks and corporations from negative to stable: what this means

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Moody's transforms Indian banks and corporations from negative to stable: this means

On Tuesday, Moody’s upgraded India’s sovereign credit rating from negative to stable.

New Delhi: Global credit rating agency Moody’s Investors Service on Wednesday changed its outlook on some Indian banks and corporations from negative to stable. Rating measures taken by Indian banks include Axis Bank, Bank of Baroda, Canara Bank, Export-Import Bank (Exim India), HDFC Bank, ICICI Bank, Punjab National Bank, State Bank of India and Union Bank.

What does this mean for lenders

Moody’s has confirmed long-term domestic and foreign current deposit ratings at Baa3 for Audi, HDFC Bank, ICICI and SBI.

For EXIM India, the long-term provider rating is placed at Baa3.

According to the agency, “long-term provider ratings are perceptions of companies’ ability to respect long-term senior unsecured financial obligations and contracts.”

Global rating agency BOB, Canara, PNB and Union Bank have confirmed Ba1 long-term local and foreign currency deposit ratings and their b1 BCAs (base credit ratings). BCA is the default probability measurement excluding external support.

Moody’s said, “Despite significant economic challenges since the outbreak, only the quality of their assets (POP, Canara, BNP and Union Bank) has deteriorated as capital has improved.”

The agency added, “Corporate asset quality improved as legacy issues were resolved when the decline in retail asset quality was relatively moderate. Asset quality will improve further if economic activity continues to normalize.”

It also noted that the profitability of these banks will improve over the next 12-18 months as borrowing costs fall in line with the rate at which low-cost loans (NPLs) are generated.

What can improve ratings

Moody’s said the BCAs of BOB and PNB could improve if they could maintain net NPL formation rates under 1% debt.

The BCAs of Canara and Union Bank can improve asset quality and improve their CET1 (General Equity Tier 1) ratio by 2% from current levels. The CET1 ratio is a measure of a lender’s capital against its assets.

Their BCAs and deposit ratings may be downgraded if property quality deteriorates to the point of reducing capital, it added.

The update comes a day after the rating agency upgraded India’s sovereign credit rating outlook to stable, as “negative risks are declining from negative feedback between the real economy and the financial system”. Moody’s says the Indian economy is showing signs of a strong recovery after the second wave of Govt-19s.

Also read: Moody’s upgrades India’s outlook from negative to stable

Moody’s maintained India’s sovereign rating on ‘Baa3’.

What is a Baa3 rating?

Baa3 (for Moody’s) or BBB- (for Standard & Poor’s and Fitch rating agencies) may be considered “investment quality” subject to moderate credit risk. Any other low ratings (such as ba1, ba2) may be called “junk” or “non-investment quality” ratings.

Overview for Indian Companies

The rating agency has confirmed its Baa3 (long-term publisher rating) and holds positions with Tata Consultancy Services, Infosys, Reliance Industries, ONGC, Petronet LNG Limited, Ultratech Cement, Oil India Limited, and Indian Oil Corporation. And Hindustan Petroleum Corporation Limited

Moody’s has confirmed the Baa3 rating of Bart Petroleum Corporation or BPCL, but holds the rating negative.

What else

In addition, Moody’s has corrected the negative position of 10 Indian infrastructure providers, including NTPC, NHAI, Power Grid, GAIL, Adani Green Energy Control Group (RG-2), Adani Transmission Limited (Restricted Group), Adani Ports and Special. Economic Zone Limited (APSEZ), Adani International Container Terminal Pvt. Ltd. (AICTPL), Adani Electricity Mumbai Limited (AEML) and Azure Power Solar Energy Pvt.



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