Moody's downgrades ratings of 8 firms, 3 banks

Andrew Cummings
June 2, 2020

India's long-term foreign-currency credit rating was cut to Baa3 from Baa2, Moody's said in a late evening statement on Monday, citing policy challenges in addressing a prolonged slowdown and the deteriorating fiscal position.

The agency's negative outlook reflects dominant, mutually-reinforcing, downside risks from deeper stresses in the economy and financial system that could lead to more severe and prolonged erosion in fiscal strength than Moody's current projects.

"Moody's has rated Modi's handling of India's economy a step above JUNK".

In the case of Central Bank of India and Indian Overseas Bank, Moody's has affirmed their long-term local and foreign currency deposit ratings at Ba2 and their BCAs at b2. Moody's had last downgraded India's rating in 1998.

Moody's has primarily attributed the downgrade to the economic disruption caused by the coronavirus outbreak and the downgrade of the sovereign rating.

India's economic growth in the March quarter slowed to an 11-year low at 3.1 percent. According to the agency, growth is expected to pick up to 8.5 percent in the following fiscal year (up from the previous forecast of 7.5 percent).

Although a rating upgrade is unlikely in the near future, Moody's would change the outlook on India's rating to stable if outturns and policy actions were to raise confidence that real and nominal growth will rise to sustainably higher rates than Moody's projects, including through measures which enhance financial stability by strengthening the supervision, regulation, and capitalization of the financial sector.

Moreover, persistent stress among banks and non-bank financial institutions (NBFIs) weighs on growth dynamics through constrained supply of credit for consumption and investment.

It doesn't expect the credit crunch in the sector to be resolved quickly. In turn, subdued growth further challenges the banking system's incomplete resolution of legacy non-performing assets and governance reforms, and is likely to further weaken asset quality and the health of banks and NBFIs.

India, the world's fifth-largest economy, is gradually emerging from one of the strictest lockdowns in place to contain the coronavirus pandemic.

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