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Moody's places ratings of 13 Indian commercial banks on review for possible downgrade
May 29, 2009: Moody's Investors Service has placed the ratings of 13 Indian commercial banks on review for possible downgrade in light of its global review of systemic support indicators for the banking systems. (See below for a full list of the affected ratings.)
Moody's previously used the local currency deposit ceiling (LCDC) as the main input for its assessment of the ability of a national government to support its banks. Although anchoring the probability of support at the LCDC is appropriate in many circumstances -- regarding the provision of liquidity to a selected number of institutions over a short period of time -- this might overestimate the capacity of a central bank to support financial institutions in the event of a banking crisis becoming both truly systemic and protracted. This approach is outlined in the Special Comment entitled "Financial Crisis More Closely Aligns Bank Credit Risk and Government Ratings in Non-Aaa Countries", which was published in May 2009.
The review of the local currency deposit ratings will look at the extent to which India's ability to provide support to its banking system, if needed, is converging with the government's own debt capacity as a result of the ongoing global economic and credit crisis. Moody's will refine its assessment of systemic support available from the Indian government to capture the impact of the erosion of the local economy's underlying credit fundamentals and the reduced fiscal policy flexibility on the government's ability to support the banking sector.
Factors that Moody's will consider in its assessment of systemic support include the size of the banking system in relation to government resources, the level of stress in the banking system, the foreign currency obligations of the banking system relative to the government's own foreign exchange resources and changes to the government's political patterns.
The following rating actions were taken:
(i) State Bank of India's A1/P-1 GLC deposit ratings were placed on review for downgrade. The FC subordinated (Lower Tier 2), junior subordinated (Upper Tier 2) and perpetual hybrid Tier 1 ratings of Baa2 under its MTN programme were also placed on review for downgrade.
All the other ratings, including the C- BFSR (mapping to a Baa2 baseline credit assessment -- BCA), Ba2/NP FC deposit ratings (constrained by the FC deposit sovereign ceiling) and Baa2 FC senior unsecured debt rating under its MTN programme, remain unchanged with a stable outlook.
(ii) ICICI Bank's A2/P-1 GLC deposit ratings were placed on review for downgrade. The FC subordinated (Lower Tier 2), junior subordinated (Upper Tier 2) and perpetual hybrid Tier 1 ratings of Baa2 under its MTN programme were also placed on review for downgrade.
All the other ratings, including the C- BFSR (mapping to a Baa2 BCA), Ba2/NP FC deposit ratings (constrained by the FC deposit sovereign ceiling) and Baa2 FC senior unsecured debt rating under its MTN programme, remain unchanged with a stable outlook.
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