Indian Lenders Slump as Moody’s Warns on Ratings: Mumbai Mover

Indian lenders fell for a fourth day after Moody’s Investors Service said today that bank ratings will remain under pressure because of rising bad loans.

State Bank of India, nation’s largest, declined 3.8 percent, and Axis Bank (AXSB) Ltd. plunged 5.8 percent at close in Mumbai. The BSE India Bankex Index (BANKEX), a gauge for 14 local lenders, dropped 4 percent, the most in five months.

Financial difficulties faced by corporate borrowers in telecommunications, power and airline industries will continue to weigh on asset quality and the ratings of banks, Moody’s said in an e-mailed statement today. The nation’s Supreme Court last month ordered the cancellation of 122 phone licenses tainted by corruption allegations, adding to the lenders’ problems, Moody’s said.

“The banks most at risk of a downgrade are those that feature insufficient earnings and capital buffers to withstand their combined exposures to troubled borrowers,” according to the credit assessor’s statement.

Moody’s downgraded the outlook for India’s banking system in November to “negative,” citing concern that a domestic slowdown and a surge in borrowing costs may increase bad loans. India’s economy may expand 7 percent in the fiscal year through March 31, according to a survey compiled by the central bank in January. That’s lower than an October estimate of 7.6 percent.

The stocks fell on Dec. 22 on speculation fresh credit to help revive Kingfisher Airlines Ltd. (KAIR), an Indian carrier struggling with $1.3 billion of debt, will erode profitability.

“Banks will have to grapple with rising bad loans till there’s a sustainable turn in the economic cycle,” said Darpin Shah, a banking analyst at Almondz Capital Markets Pvt. in Mumbai. “Any further downgrades by rating agencies will push up the borrowing costs of these banks.”

To contact the reporter on this story: Anto Antony in New Delhi at aantony1@bloomberg.net

To contact the editor responsible for this story: Russell Ward at rward16@bloomberg.net

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