Moody's announces bank rating actions for India resulting from implementation of JDA and BFSR methodologies
New York, April 24, 2007 -- Moody's Investors Service today published the rating results for banks
in India as part of the application of its refined joint default analysis
(JDA) and updated bank financial strength rating (BFSR) methodologies.
BFSRs evaluate the stand-alone or intrinsic financial strength
of banks without reference to external support factors. BFSRs are
the starting point of Moody's bank credit analysis, and are
an important determinant of Moody's bank deposit and debt ratings.
Moody's then uses its JDA methodology to incorporate the potential
for external support into a bank's local currency deposit rating.
The potential for external support can reduce the riskiness of a bank's
deposit and debt obligations; however, such support is often
uncertain. Moody's uses conservative support assumptions
and a limited number of support levels to ensure that sufficient weight
is given to a bank's intrinsic financial strength in its bank deposit
and debt ratings.
Moody's uses deposit ratings to determine bank debt ratings based
on its notching guidelines for bank securities. Ratings for foreign
currency obligations are determined after considering Moody's country
ceilings for foreign currency ratings.
The methodologies are being implemented country by country, with
results being announced on a weekly basis. Results for those banks
with a parent bank located in another country where the methodologies
have not yet been implemented will be concluded at the same time as the
parent.
The majority of Indian Banks have benefited from a one-notch upgrade
of their BFSRs due to their increasingly sound financial fundamentals
and strong franchises, while their local currency deposit ratings,
especially those of majority government-owned banks, have
also benefited from a very high probability of systemic support in case
of need. Most foreign currency deposit and debt ratings remain
unchanged since they are already constrained at their respective country
ceilings.
The most notable rating change that is mainly driven by systemic support
is that of State Bank of India (SBI) whose local currency deposit rating
is now rated at A1, which makes it the only Indian bank rated at
the corresponding Indian ceiling for such deposits. This specific
rating imputes four notches of uplift for SBI, with a number of
other banks rated just below at the A2 and A3 levels, driven mainly
by systemic support.
This press release lists the names of issuers in India whose ratings have
been changed, affirmed, or put on review. To view all
ratings changes and other documents explaining Moody's bank rating
methodologies, please go to www.moodys.com/JDABanks.
The specific ratings changes are as follows:
Bank of Baroda - The BFSR is changed to D+ from D.
The Global Local Currency Deposit Ratings assigned are A3/P-2.
The Foreign Currency Deposit Rating is unchanged at Ba2.
Bank of India - The BFSR is changed to D+ from D. The
Global Local Currency Deposit Ratings assigned are A3/P-1.
The Foreign Currency Deposit Rating is unchanged at Ba2. The Foreign
Currency Bond Rating for senior, subordinated and junior subordinated
(Upper Tier 2) obligations also is unchanged at Baa2. The Foreign
Currency Bond Rating for perpetual non-cumulative subordinated
obligations (Hybrid Tier 1) is unchanged at Baa3.
Canara Bank - The BFSR is changed to D+ from D. The
Global Local Currency Deposit Ratings assigned are A2/P-1.
The Foreign Currency Deposit Rating is unchanged at Ba2. The Foreign
Currency Bond Rating for senior, subordinated and junior subordinated
(Upper Tier 2) obligations also is unchanged at Baa2. The Foreign
Currency Bond Rating for perpetual non-cumulative subordinated
obligations (Hybrid Tier 1) is changed to Baa2 from Baa3.
Central Bank of India - The BFSR is changed to D- from E+.
The Global Local Currency Deposit Ratings assigned are Baa2/P-2.
The Foreign Currency Deposit Rating is unchanged at Ba2.
HDFC Bank Ltd - The BFSR is unchanged at C-. The
Global Local Currency Deposit Ratings assigned are Baa1/P-2.
The Foreign Currency Deposit Rating is unchanged at Ba2.
ICICI Bank Ltd - The BFSR is unchanged at C-. The
Global Local Currency Deposit Ratings assigned A2/P-1. The
Foreign Currency Deposit Rating is unchanged at Ba2. The Foreign
Currency Bond Rating for senior, subordinated, junior subordinated
(Upper Tier 2) and perpetual non-cumulative subordinated (Hybrid
Tier 1) obligations also is unchanged at Baa2.
Industrial Development Bank of India Ltd - The BFSR is unchanged
at D-. The Global Local Currency Deposit Ratings assigned
are Baa2/P-2. The Foreign Currency Deposit Rating is unchanged
at Ba2. The Foreign Currency Bond Rating for senior obligations
also is unchanged at Baa2.
Oriental Bank of Commerce - The BFSR is changed to D+ from
D. The Global Local Currency Deposit Ratings assigned are A3/P-1.
The Foreign Currency Deposit Rating is unchanged at Ba2.
Punjab National Bank - The BFSR is changed to D+ from D.
The Global Local Currency Deposit Ratings assigned are A2/P-1.
The Foreign Currency Deposit Rating is unchanged at Ba2.
State Bank of India - The BFSR is changed to C- from D+.
The Global Local Currency Deposit Rating is changed to A1 from A2.
The Foreign Currency Deposit Rating is unchanged at Ba2. The Foreign
Currency Bond Rating for senior, subordinated, junior subordinated
(Upper Tier 2) and perpetual non-cumulative subordinated (Hybrid
Tier 1) obligations also is unchanged at Baa2.
Union Bank of India - The BFSR is changed to D+ from D-.
The Global Local Currency Deposit Ratings assigned are A3/P-1.
The Foreign Currency Deposit Rating is unchanged at Ba2.
UTI Bank Ltd - The BFSR is changed to C- from D+.
The Global Local Currency Deposit Ratings assigned are A3/P-1.
The Foreign Currency Deposit Rating is unchanged at Ba2. The Foreign
Currency Bond Rating for senior and subordinated obligations also is unchanged
at Baa2. The Foreign Currency Bond Rating for junior subordinated
obligations (Upper Tier 2) is changed to Baa2 from Baa3 and for perpetual
non-cumulative subordinated obligations (Hybrid Tier 1) is changed
to Baa2 from Ba1.
All ratings have a stable outlook in line with the outlook of the country
deposit and debt ceilings.
ABOUT MOODY'S BANK RATINGS
Bank Financial Strength Rating
Moody's Bank Financial Strength Ratings (BFSRs) represent Moody's opinion
of a bank's intrinsic safety and soundness and, as such, exclude
certain external credit risks and credit support elements that are addressed
by Moody's Bank Deposit Ratings. Bank Financial Strength Ratings
do not take into account the probability that the bank will receive such
external support, nor do they address risks arising from sovereign
actions that may interfere with a bank's ability to honor its domestic
or foreign currency obligations. Factors considered in the assignment
of Bank Financial Strength Ratings include bank-specific elements
such as financial fundamentals, franchise value, and business
and asset diversification. Although Bank Financial Strength Ratings
exclude the external factors specified above, they do take into
account other risk factors in the bank's operating environment,
including the strength and prospective performance of the economy,
as well as the structure and relative fragility of the financial system,
and the quality of banking regulation and supervision.
Global Local Currency Deposit Rating
A deposit rating, as an opinion of relative credit risk, incorporates
the Bank Financial Strength Rating as well as Moody's opinion of any external
support. Specifically, Moody's Bank Deposit Ratings are opinions
of a bank's ability to repay punctually its deposit obligations.
As such, Moody's Global Local Currency Bank Deposit Ratings are
intended to incorporate those aspects of credit risk relevant to the prospective
payment performance of rated banks with respect to local currency deposit
obligations, and includes: intrinsic financial strength and
both implicit and explicit external support elements. Moody's Bank
Deposit Ratings do not take into account the benefit of deposit insurance
schemes which make payments to depositors, but they do recognize
the potential support from schemes that may provide assistance to banks
directly.
Foreign Currency Deposit Rating
Moody's ratings on foreign currency bank obligations derive from the bank's
local currency rating for the same class of obligation. The implementation
of JDA for banks can lead to a high local currency ratings for certain
banks, which could also produce high foreign currency ratings.
Nevertheless, it should be reminded that foreign currency deposit
ratings are in all cases constrained by the country ceiling for foreign
currency bank deposits. This may result in the assignment of a
different, and typically lower, rating for the foreign currency
deposits relative to the bank's rating for local currency obligations.
Foreign Currency Debt Rating
Foreign currency debt ratings are derived from the bank's local currency
debt rating for the same class of obligation. In a similar way
to foreign currency deposit ratings, foreign currency debt obligations
may also be constrained by the country ceiling for foreign currency bonds
and notes, however, in some cases the ratings on foreign currency
debt obligations may be allowed to pierce the foreign currency ceiling.
A particular mix of rating factors are taken into consideration in order
to assess whether a foreign currency bond rating pierces the country ceiling.
They include the issuer's global local currency rating, the foreign
currency government bond rating, the country ceiling for bonds and
the debt's eligibility to pierce that ceiling.
National Scale Rating
National scale ratings are intended primarily for use by domestic investors
and are not comparable to Moody's globally applicable ratings; rather
they address relative credit risk within a given country. An Aaa
rating on Moody's National Scale indicates an issuer or issue with the
strongest creditworthiness and the lowest likelihood of credit loss relative
to other domestic issuers. National Scale Ratings, therefore,
rank domestic issuers relative to each other and not relative to absolute
default risks. National ratings isolate systemic risks; they
do not address loss expectation associated with systemic events that could
affect all issuers, even those that receive the highest ratings
on the National Scale.
Limassol
Mardig Haladjian
General Manager
Financial Institutions Group
Moody's Investors Service Cyprus Limited
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Limassol
Nondas Nicolaides
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Limited
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454