ICICI Bank Ltd., HDFC Bank Ltd. and Axis Bank Ltd. were placed under review for a downgrade of their financial strength rating by Moody’s Investors Service as the lenders are currently above India’s sovereign debt rating.
The review will take into account the banks’ cross-border diversification of operations and their domestic sovereign debt holdings, among other factors, Moody’s said in a statement today. Most banks globally will be rated at the same grade as the nation where they are based, the ratings company said. India is rated at Baa3, the lowest investment-grade level.
India’s sovereign credit outlook was lowered this month to negative by Standard & Poor’s, taking the nation a step closer to junk status and dealing a further blow to Prime Minister Manmohan Singh’s economic agenda. S&P reaffirmed its BBB- long-term India rating, while citing concerns that economic growth has slowed and the current-account deficit has widened.
“Moody’s believes that the creditworthiness of financial institutions with low cross-border operational diversification and/or high balance-sheet exposures to the debt of their domestic sovereign is closely linked to that sovereign’s credit strength,” according to the statement today. Such lenders “are unlikely to have standalone credit assessments above the sovereign.”
India’s economic expansion moderated to 6.1 percent in the quarter ended Dec. 31, the slowest pace in almost three years, as costlier credit hurt consumer spending and dented investment. The slowdown sapped tax receipts even as subsidies and a job-guarantee program for rural workers fanned spending.
ICICI, HDFC and Axis currently have standalone financial strength ratings, or baseline credit assessments of C-/Baa2, Moody’s said. The review of those ratings may take about three months, the credit assessor. The debt and deposit ratings for all three banks are unaffected, according to the statement.
ICICI, India’s second-largest lender by assets, rose 1.6 percent to 882.35 rupees at close in Mumbai. HDFC, the country’s second-largest bank by market value, fell 0.2 percent to 542.5 rupees and Axis declined 1.3 percent to 1,106.95 rupees. The BSE India Bankex Index, a gauge for 14 Indian lenders, rose by 0.6 percent.
“The rating action by Moody’s is not a change in the sovereign rating of India and not affect ratings of any instruments issued by ICICI Bank,” including bonds or deposits, ICICI said in an e-mailed statement today. “Our ALM is well matched with asset repayments in fiscal 2012-13 broadly covering our bond and loan repayment obligations.” ALM refers to the asset-liability mix.
“We do not need to access bond markets for refinancing,” the Mumbai-based lender said in the statement. “We will look at accessing the markets to raise funds for new lending depending on the cost and the rates at which we can deploy the funds.”
HDFC spokesman Neeraj Jha and Axis spokesman Julius Samson declined to comment immediately when contacted.