Indian Institutional Framework Supportive of Subnationals, says Fitch

December 13, 2010: Fitch Ratings says in a new report 'Institutional Framework for Indian Subnationals', that India's favourable institutional framework has supported the country's subnationals' performance although it also contains some weaknesses.

Major credit positives in the Indian institutional framework include federal support to states, through sharing taxes collected by the federal government, and grants, which help financially weaker and under-developed states. In addition, under-developed states receive special assistance packages from the federal government to encourage all-round development, while local rural and urban bodies benefit from transfers from both the state finance commission and the federal finance commission.

State government's annual borrowing targets are implicitly fixed by the federal government and they cannot borrow without the permission of the federal government as long as they have debt outstanding to the federal government. At the same time Indian states cannot directly raise foreign debt, thus alleviating foreign exchange risk. All these have resulted in low defaults and debt write-offs among Indian subnationals.

Nevertheless, while state debt limits are implicitly fixed by the federal government, over the years states have created a number of special purpose vehicles (SPVs) to borrow in the domestic financial market. Such debt, which is backed by state government guarantees, could become contingent liabilities of Indian states if the guarantee is invoked. Fitch also points out that fiscal flexibility is constrained by Indian subnationals' limited revenue-raising powers. In response, state governments have resorted to adjusting the respective states' value added tax rates, resulting in inconsistent pricing of goods across states. Such distortion is exacerbated by disparate levels of other taxes levied on goods across states. Fitch also notes that variable accounting standards across states could be tightened, especially for local bodies.

Fitch Upgrades 5 Indian Banks' Support Ratings
Fitch upgrades India's Currency Outlook To Stable
Global Bank Ratings Continue Positive Trend
Credit quality stabilising, but recovery will be slow
Credit quality stabilising, but recovery will be slow
Indian Banks are generally resilient under stress test
Federal Bank on watch on possible merger with Catholic Syrian Bank
Moody's places ratings of 13 banks on review
S&P revises outlook on 12 Indian banks to negative
S&P cuts India outlook to negative on unsustainable deficit
Fitch Affirms India’s Long-term foreign currency & local currency ratings Moody's changes credit outlook for Indian banking to negative
Fitch affirms Indian Bank's ratings with long term stable outlook
India's Ratings Maintained by S&P on Growth Outlook
Tough year ahead for Asian banks as recession spreads
Outlooks on most banking systems in Asia Pacific turns negative
Greater refinancing risk for Asia-Pacific borrowers
Government measures should stabilize global banking markets
Global banking industry to see more restructuring & consolidation
Indian Banking sector challenged by domestic, not global, factors






      Banking | Technology | Finance | Advertise | Terms of use | Disclaimer | Contact us
                         © Banknet India | All rights reserved worldwide.