Coronavirus effect: Moody's takes ratings action on 11 banks; downgrades SBI, HDFC, IndusInd, EXIM Bank
Moody's has downgraded the long-term local and foreign currency deposit ratings of State Bank of India and HDFC Bank to Baa3 from Baa2, and the long-term issuer rating of EXIM India to Baa3 from Baa2
- Jun 2, 2020,
- Updated Jun 2, 2020 9:29 PM IST
A day after downgrading India's sovereign rating, Moody's Investors Service on Tuesday took rating action on eleven Indian banks. These banks include State Bank of India, HDFC Bank, IndusInd Bank, Bank of Baroda, Punjab National Bank, Union Bank of India, Canara Bank, Bank of India, Central Bank of India, Indian Overseas Bank and EXIM Bank.
"Economic disruption caused by the coronavirus outbreak and the downgrade of the sovereign rating are the key drivers for today's rating actions," Moody's said.
The rating action on Indian banks follows Moody's recent downgrade of the Indian government's issuer rating to Baa3 from Baa2 with a negative outlook. Moody's has maintained India's macro profile, which serves as an input for the bank ratings, at moderate. The action indicates the impact on the Indian banks of the breadth and severity of the economic shock, and the deterioration in credit quality it has triggered, it said.
According to Moody's, the Indian banking sector has been affected given the disruptions to economic activity from the coronavirus outbreak, which is weakening borrowers' credit profiles. The agency opined that disruptions from the COVID-19 pandemic will worsen the economic slowdown in India that has been underway in the past year and will accelerate deterioration in the banks' asset quality and profitability.
On stimulus measures, the agency said that relief packages announced by the Indian government and the Reserve Bank of India (RBI) since the start of the outbreak will help mitigate some of the credit pressures, but the longer and broader the economic slowdown, the more these banks will face asset quality and profitability issues. At the same time, heightened liquidity stress at non-bank financial institutions will pose a risk to the stability of the broad financial system, given banks' large direct exposures to these entities, it added.
Moody's expects the standalone credit profiles or BCAs of most rated public sector banks (PSBs) to deteriorate as the economic shock will strain their already weak solvency. Also, in the absence of external capital support from the Indian government, Moody's expects the capitalisation of the public sector banks to deteriorate. Despite the near-term asset quality, profitability and capital strain, it expects their funding and liquidity to remain a key credit strength.
For the private sector banks covered in this rating action, in Moody's opinion, their asset quality and profitability will also deteriorate driven by rising loan delinquencies and defaults due to the coronavirus outbreak, which will result in an increase in credit costs. However, most rated private sector banks have better loss absorbing capacity and stronger BCAs than their PSB peers because of stronger capitalisation and loan loss reserves, it said.
A day after downgrading India's sovereign rating, Moody's Investors Service on Tuesday took rating action on eleven Indian banks. These banks include State Bank of India, HDFC Bank, IndusInd Bank, Bank of Baroda, Punjab National Bank, Union Bank of India, Canara Bank, Bank of India, Central Bank of India, Indian Overseas Bank and EXIM Bank.
"Economic disruption caused by the coronavirus outbreak and the downgrade of the sovereign rating are the key drivers for today's rating actions," Moody's said.
The rating action on Indian banks follows Moody's recent downgrade of the Indian government's issuer rating to Baa3 from Baa2 with a negative outlook. Moody's has maintained India's macro profile, which serves as an input for the bank ratings, at moderate. The action indicates the impact on the Indian banks of the breadth and severity of the economic shock, and the deterioration in credit quality it has triggered, it said.
According to Moody's, the Indian banking sector has been affected given the disruptions to economic activity from the coronavirus outbreak, which is weakening borrowers' credit profiles. The agency opined that disruptions from the COVID-19 pandemic will worsen the economic slowdown in India that has been underway in the past year and will accelerate deterioration in the banks' asset quality and profitability.
On stimulus measures, the agency said that relief packages announced by the Indian government and the Reserve Bank of India (RBI) since the start of the outbreak will help mitigate some of the credit pressures, but the longer and broader the economic slowdown, the more these banks will face asset quality and profitability issues. At the same time, heightened liquidity stress at non-bank financial institutions will pose a risk to the stability of the broad financial system, given banks' large direct exposures to these entities, it added.
Moody's expects the standalone credit profiles or BCAs of most rated public sector banks (PSBs) to deteriorate as the economic shock will strain their already weak solvency. Also, in the absence of external capital support from the Indian government, Moody's expects the capitalisation of the public sector banks to deteriorate. Despite the near-term asset quality, profitability and capital strain, it expects their funding and liquidity to remain a key credit strength.
For the private sector banks covered in this rating action, in Moody's opinion, their asset quality and profitability will also deteriorate driven by rising loan delinquencies and defaults due to the coronavirus outbreak, which will result in an increase in credit costs. However, most rated private sector banks have better loss absorbing capacity and stronger BCAs than their PSB peers because of stronger capitalisation and loan loss reserves, it said.