Indian banks: S&P differs with Moody’s3 min read . Updated: 10 Nov 2011, 11:55 PM IST
Indian banks: S&P differs with Moody’s
Indian banks: S&P differs with Moody’s
Mumbai: A day after Moody’s Investors Service downgraded its outlook on India’s ₹ 64 trillion banking sector from stable to negative, rival rater Standard and Poor’s (S&P) raised its assessment on the Indian banking system, saying local regulations are in line with global standards.
“In our view, banking regulations in India are in line with international standards and the regulator (Reserve Bank of India, or RBI) has a moderately successful track record," S&P analysts Geeta Chugh and Deepali Seth said in the assessment report published on Thursday. “We consider governance standards as generally adequate, though disclosures are somewhat inadequate."
S&P’s action, however, is technically not a rating upgrade. It has a stable outlook on all the 12 Indian banks it has rated.
“This is just a change in criteria and not a rating revision. The revision follows our assessment of India after having published our updated Bicra methodology," an S&P spokeswoman said. “The criteria was changed to bring about greater transparency and global compatibility."
Other countries in group 5 are China, Portugal, Thailand and Turkey.
On Wednesday, Moody’s downgrade of India’s banking system to negative evoked criticism from bankers, the government and even a domestic rater, Credit Analysis and Research Ltd (CARE), which said the action was unwarranted as Indian banks are adequately capitalized and strongly regulated.
S&P, however, cautioned that India’s economic resilience is constrained by its weak economic structure. “We note that a large and persistent fiscal deficit limits the government’s ability to stimulate growth through fiscal policies," it said.
However, the Indian banking system has a level of “stable, core customer deposit", which limits dependence on external borrowing, it noted.
S&P also lifted its economic risk score for India to 5 from 6.
CARE agreed with S&P’s move, saying Indian banking system remains healthy.
“We firmly belive that Indian banks are well capitalized and the underlying economy is growing at 7-8% pace, which reflects that fundamentals of economy remains strong," said Rajesh Mokashi, deputy managing director, CARE. “Our outlook on Indian banking sector remain comfortable."
Naresh Takkar, managing director of another domestic rating agency, Icra, in which Moody’s is the single largest investor, said different rating agencies can have different views. “Diversity of opinions is healthy for the market. If we have the sameview by all rating agencies, we won’t need multiple rating agencies."
Top bankers said there was no need for any panic due to the rating agencies’ actions.
“The Indian banking system is as resilient as it was before. We have sufficient prudential guidelines and have strong regulations. So there is no need to have a knee-jerk reaction on either side (rating downgrade or upgrade)," said K.R. Kamath, chairman and managing director of Punjab National Bank.
In June, RBI’s financial stability report indicated that the Indian financial system remained stable “in the face of some fragilities being observed in the global macrofinancial environment".
A series of stress tests on credit, liquidity and interest rate risks showed that Indian banks remained reasonably resilient, though their profitability could be affected.
Arun Kaul, chairman and managing director of Kolkata-based UCO Bank, said, “The rating changes do not confuse me at all, but it does create confusion for the international investors."
According to S&P, while loan growth in India has been high, banks have a limited share of high-risk lending and a negligible presence of complex and innovative products.
M.D. Mallya, chairman of the bankers’ lobby Indian Banks’ Association and chairman and managing director of Bank of Baroda, said the Indian banking system is not stressed. “Now that the economy is slowing down a bit, there could be some stress in the asset quality, but that doesn’t mean that the Indian banking system is stressed."