Limassol, January 27, 2010 -- Limassol, January 27, 2010 -- Moody's
Investors Service has today downgraded the ratings on certain Indian banks'
hybrid securities, in line with its revised Guidelines for Rating
Bank Hybrids and Subordinated Debt, published in November 2009.
Moody's downgraded Indian banks' cumulative junior subordinated
debt securities ("Upper Tier 2 Notes") as well as the perpetual
non-cumulative hybrid instruments ("Hybrid Tier 1 Notes").
This concludes the review for possible downgrade that began on 18 November
2009. The rating outlook for all Indian banks affected is stable.
The list of the affected securities can be accessed through this link:
http://v3.moodys.com/page/viewresearchdoc.aspx?docid=PBC_122721
Prior to the global financial crisis, Moody's had incorporated
into its ratings an assumption that support provided by national governments
and central banks to support a troubled bank would, to some extent,
benefit the subordinated debt holders as well as the senior creditors.
The systemic support for these instruments has not been forthcoming in
many cases. The above-mentioned revised guidelines largely
remove previous assumptions of systemic support, resulting in today's
rating action. In addition, this revised methodology generally
widens the notching on a hybrid's rating that is based on the instrument's
features.
RATING ACTION IN DETAIL
The starting point in Moody's revised approach to rating hybrid
securities is the Adjusted Baseline Credit Assessment (Adjusted BCA).
The Adjusted BCA reflects the bank's stand-alone credit strength
as expressed through its Baseline Credit Assessment (BCA) and includes
uplift for parental and/or cooperative support, if applicable.
The Adjusted BCA excludes systemic support.
The Adjusted BCA for each Moody's-rated public-sector
bank in India, which reflects support from the government as parent,
is as follows:
For State Bank of India, the Adjusted BCA is Baa2 and is the same
as its BCA since the parental/government support does not provide any
ratings uplift.
For Bank of Baroda, it is Baa2 and is two notches higher than its
Ba1 BCA due to the parental/government support providing ratings uplift.
For Bank of India, it is Baa2 and is two notches higher than its
Ba1 BCA due to the parental/government support providing ratings uplift.
For Canara Bank, it is Baa2 and is one notch higher than its Baa3
BCA due to the parental/government support providing ratings uplift.
For Union Bank of India, it is Baa2 and is two notches higher than
its Ba1 BCA due to the parental/government support providing ratings uplift.
On the other hand, the Adjusted BCA for each of the three private-sector
banks in India rated by Moody's (ICICI Bank Ltd, HDFC Bank
Ltd and Axis Bank Ltd) is Baa2 and is in line with their respective BCA.
These private-sector banks do not benefit from any parental or
systemic support in their hybrid ratings.
The main features of the hybrid instruments typically issued by the above
Moody's-rated Indian Banks and the way Moody's rates
them are as follows:
- The Upper Tier 2 Notes have a maturity of at least 15 years.
The issuer can defer any interest payments at its discretion if its capital
adequacy ratio (CAR) is below the minimum regulatory requirement of 9%
or if it reports a net loss, defined as a negative balance in the
profit and loss account contained within reserves and surplus of the issuer's
balance sheet. If the issuer has only a net loss, but does
not breach the CAR trigger, then it can make interest payments provided
it gets the regulator's (RBI) approval. Any deferred interest
is cumulative. The instrument has a junior subordinated claim in
liquidation and ranks only more senior to Tier 1 Notes and common equity.
Moody's generally rates this kind of junior subordinated instruments
two notches below an issuer's Adjusted BCA.
- The Hybrid Tier 1 Notes are perpetual with a coupon skip mechanism
similar to those in the Upper Tier 2 Notes above. However,
any unpaid interest is non-cumulative. In liquidation,
the Hybrid Tier 1 Notes rank junior to the Upper Tier 2 Notes and only
senior to common equity. Moody's generally rates such Hybrid
Tier 1 instruments three notches below an issuer's Adjusted BCA.
The above-mentioned rating actions on Moody's-rated
Indian banks' hybrid securities that were issued or can be issued
under their existing international MTN programmes are as follows:
- State Bank of India: Upper Tier 2 Notes were downgraded
to Ba1 from Baa3 and the perpetual Hybrid Tier 1 securities were downgraded
to Ba2 from Ba1.
- ICICI Bank Ltd: Upper Tier 2 Notes were downgraded to Ba1
from Baa3 and the Hybrid Tier 1 Notes were downgraded to Ba2 from Ba1.
- Bank of Baroda: Upper Tier 2 Notes were downgraded to Ba1
from Baa3 and the Hybrid Tier 1 Notes were confirmed at Ba2.
- Bank of India: Upper Tier 2 Notes were downgraded to Ba1
from Baa3 and the Hybrid Tier 1 Notes were confirmed at Ba2.
- Canara Bank: Upper Tier 2 Notes were downgraded to Ba1
from Baa3 and the Hybrid Tier 1 Notes were confirmed at Ba2.
- HDFC Bank Ltd: Upper Tier 2 Notes were downgraded to Ba1
from Baa3 and the Hybrid Tier 1 Notes were downgraded to Ba2 from Ba1.
- Union Bank of India: Upper Tier 2 Notes were downgraded
to Ba1 from Baa3 and the Hybrid Tier 1 Notes were confirmed at Ba2.
- Axis Bank Ltd: Upper Tier 2 Notes were downgraded to Ba1
from Baa3 and the Hybrid Tier 1 Notes were downgraded to Ba2 from Ba1.
Please visit www.moodys.com to access the following documents
for additional information:
- Moody's Guidelines for Rating Bank Hybrid Securities and
Subordinated Debt -- 17 November 2009
- Frequently Asked Questions: Moody's Guidelines for
Rating Bank Hybrid Securities and Subordinated Debt -- 17 November
2009
The last rating action for all Moody's-rated Indian banks
was taken on 17 December 2009 when their long-term foreign currency
deposit rating was upgraded to Ba1 from Ba2, in line with the recent
upgrade of India's foreign currency deposit ceiling.
Headquartered in Mumbai, State Bank of India had assets of INR9.644
trillion (US$184.8 billion) as of end-March 2009.
Headquartered in Mumbai, ICICI Bank Ltd had assets of INR3.793
trillion (US$72.7 billion) as of end-March 2009.
Headquartered in Mumbai, Bank of Baroda had assets of INR2.274
trillion (US$43.6 billion) as of end-March 2009.
Headquartered in Mumbai, Bank of India had assets of INR2.255
trillion (US$43.2 billion) as of end-March 2009.
Headquartered in Bangalore, Canara Bank had assets of INR2.175
trillion (US$41.7 billion) as of end-March 2009.
Headquartered in Mumbai, HDFC Bank Ltd had assets of INR1.833
trillion (US$35.1 billion) as of end-March 2009.
Headquartered in Mumbai, Union Bank of India had assets of INR1.610
trillion (US$30.9 billion) as of end-March 2009.
Headquartered in Mumbai, Axis Bank Ltd had assets of INR1.477
trillion (US$28.3 billion) as of end-March 2009.
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
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Limited
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades Indian banks' hybrid securities ratings