Mumbai: As part of a global review of all its bank ratings across 1,000 banks in 90 countries, Moody’s Investors Service is likely to revise the ratings of several Indian banks.
Moody’s has so far rated 13 Indian banks and all of them have Ba2 rating for their foreign-currency bank deposits. This is not considered investment grade. India’s sovereign bond rating is, however, investment grade, Baa3.
“There is no connection between the country’s bond rating and banks’ deposit rating as they cover two different instruments,” says one banking analyst in Mumbai, who didn’t want to be quoted. He was, however, quick to add that any rating upgrade would bring down the cost of overseas deposits for Indian banks.
In a statement, Moody’s said the new methodology should result in a “significant number of bank deposit upgrades”.
The first set of ratings changes will start Friday with some European banks, and every week, the ratings agency plans to release additional changes, through 11 April. It is not clear which week will see the release of any new ratings on Indian banks.
The list of banks that have got themselves rated by Moody’s includes ICICI Bank, HDFC Bank and UTI Bank in the private sector, and State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Bank of India, Union Bank, Oriental Bank of Commerce, Central Bank and IDBI in the state sector, in addition to Exim Bank.
On a scale of A to E for the financial strength rating, ICICI Bank and HDFC Bank have relatively better rating at C-, followed by UTI Bank and State Bank of India’s D+ and Punjab National Bank at D (with positive outlook). Canara Bank, Bank of India, Bank of Baroda and Oriental Bank, too, have a D rating, but with a stable outlook, while Union Bank and IDBI have a D- rating. Central Bank is placed at the lowest end with E+. The Exim Bank does not have any outstanding rating in this category.
A senior banker in Mumbai, who didn’t want to be named, expects an upgrade of foreign-currency deposit rating of Indian banks as “they are in the pink of health”. “The average net non-performing assets of Indian banks is lower than 2% of their advances and the earnings are robust. There is indeed a case for upgrading (the rating),” he said.
”Overall, there is likely to be a fairly significant number of upgrades of bank deposit ratings, with a few downgrades,” said David Fanger, Moody’s chief credit officer for financial institutions, in a press release, and not specifically addressing Indian banks.
“Some bank debt ratings will also be upgraded, although to a lesser extent because, in some countries, subordinated bank debt obligations benefit less from systemic support than deposits.”
Moody’s said the new rating methodology was based on a year-long market feedback and would offer a more transparent and consistent method of evaluating the likelihood of a bank getting external support, either from a parent, regional government, cooperative or mutual banking group.
The updated Bank Financial Strength Rating will also lead to some changes to ratings that measure stand-alone financial strength, the agency said.
The rating is an opinion of the relative stand-alone financial strength of a bank without reference to external support factors such as liquidity support.