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Moody’s changes outlook for Indian banks, corporates from negative to stable: What it means

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Moody’s on Tuesday stabilized India’s sovereign credit rating outlook from negative.

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

What this means for lenders:

Moody’s has confirmed the long-term local and overseas current deposit ratings for Axis, HDFC Bank, ICICI and SBI at Ba3.

The Long Term Issuer Rating for EXIM India has been kept at Baa3.

According to the agency, “the long-term issuer rating is an opinion of the ability of entities to honor long-term senior unsecured financial obligations and contracts.”

The global rating agency has confirmed the Ba1 long-term local and foreign currency deposit ratings of BoB, Canara, PNB and Union Bank as well as their B1 BCA (Baseline Credit Assessment). BCA is a measure of default probability excluding external support.

Moody’s said that “despite significant economic challenges since the start of the pandemic, their (BoB, Canara, PNB and Union Bank) asset quality has deteriorated only marginally while capital has improved.”

The agency said that, “Corporate asset quality has improved as legacy issues have been resolved while the decline in retail asset quality was relatively moderate. Asset quality will improve further if economic activity remains normal. “

It also mentioned that the profitability of these banks will improve over the next 12-18 months as the credit cost will come down in line with the lower non-performing loan (NPL) formation rate.

Can I upgrade the rating in future

Moody’s said the BCA of BoB and PNB may be upgraded if they are able to maintain a net NPL formation rate of below 1% of loans, indicating that structural underwriting weaknesses are being addressed.

The BCAs of Canara and Union Bank may be upgraded if their CET 1 (Common Equity Tier 1) ratio improves by 2 percentage points from the current level, apart from improving asset quality. The CET1 ratio is a measure of a lender’s capital against its assets.

If the asset quality deteriorates to such an extent that it reduces capital, their BCA and deposit rating may be downgraded, it further said.

The update comes a day after the rating agency stabilized India’s sovereign credit rating outlook from negative, as “negative feedback between the real economy and the financial system is easing downside risks.” Moody’s said that the Indian economy has shown signs of a strong rebound after the second Covid-19 wave.

ALSO READ: Moody’s downgrades India’s outlook from negative to negative

Moody’s maintains India’s sovereign rating at ‘Baa3’.

What is Baa3 Rating?

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

Outlook for Indian Corporates

The rating agency has reaffirmed its Baa3 (Long Term Issuer Rating) and stabilized its outlook from negative to negative for Tata Consultancy Services, Infosys, Reliance Industries, ONGC, Petronet LNG Ltd., UltraTech Cement, Oil India Ltd., Indian Oil Corporation Ltd. Have given. and Hindustan Petroleum Corporation Limited

Moody’s has also confirmed the Baa3 rating of Bharat Petroleum Corporation or BPCL but kept the rating outlook negative.

what’s more

In addition, Moody’s has rated the outlook from negative to stable for 10 Indian infrastructure issuers including NTPC, NHAI, Power Grid, GAIL, Adani Green Energy Restricted Group (RG-2), Adani Transmission Limited (Restricted Group), Adani Ports and Special. have make. Economic Zone Limited (APSEZ), Adani International Container Terminal Private Limited (AICTPL), Adani Electricity Mumbai Limited (AEML) and Azure Power Solar Energy Private Limited (Azure Power RG-2).

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