New York, November 20, 2017 -- Moody's Investors Service says that it has upgraded India's sovereign
rating to Baa2 from Baa3 and revised the rating outlook to stable from
positive because of its expectation that the country's continued
progress on economic and institutional reforms will, over time,
enhance India's high growth potential and its large and stable financing
base for government debt.
"The recent reforms offer greater confidence that the high level
of public indebtedness, one of India's principal credit weaknesses,
will remain stable, even in the event of shocks, and will
ultimately decline," says William Foster, a Moody's
Vice President and Senior Credit Officer.
Moody's conclusions are contained in its just-released report titled
"Cross-Sector — India: FAQ on credit impact of sovereign
upgrade". Moody's report provides a detailed explanation
of the drivers behind the sovereign upgrade, and addresses a number
of questions pertinent to the sovereign rating, as well as the implications
of the sovereign rating upgrade for Indian banks, and non-financial
corporates.
"As for the banks, the upgrade of the sovereign rating led
us to upgrade the ratings of only one public sector bank — State
Bank of India (SBI, Baa2 stable, ba1) — of the 11 Indian
public sector banks that we rate, because the other 10 banks'
standalone credit profiles are relatively weaker when compared to SBI,"
says Alka Anbarasu, a Moody's Vice President and Senior Analyst.
The 10 banks' ratings therefore remain at least one notch below
the sovereign's rating.
At the same time, Moody's also upgraded the ratings of one
private sector bank — HDFC Bank Limited (Baa2 stable, baa2).
Prior to this rating action, HDFC Bank's ratings were constrained
by India's previous sovereign rating of Baa3. HDFC Bank's
ratings upgrade therefore, was driven by the sovereign rating upgrade,
as well as HDFC Bank's strong baseline credit assessment (BCA) of
baa2, which is the highest among all rated banks in India.
HDFC Bank's ratings factor in Moody's assessment of a high
level of government support for the bank in times of need.
"The sovereign upgrade also resulted in rating upgrades for five
oil & gas companies, including the three state-owned
oil marketing companies whose standalone credit quality, as captured
by their BCAs, is weaker than that of the sovereign,"
says Vikas Halan, a Moody's Vice President and Senior Credit
Officer.
Moody's upgraded the ratings of the oil marketing companies to Baa2
from Baa3 reflecting these companies' strategic importance to the
oil and gas sector in India.
Moody's report answers the following questions:
1) What are the drivers of the sovereign upgrade to Baa2?
2) How did the implementation of recent economic reforms factor into the
decision to upgrade the sovereign rating?
3) India's debt-to-GDP ratio remains high. How does
this factor into the upgrade of the sovereign's rating?
4) State deficits have been widening. What are the implications
for India's fiscal outlook and rating?
5) How does the recently announced bank recapitalization plan impact the
government's fiscal position and how has it been factored into the Baa2
rating?
6) What is the reason for the upgrade amid the current macroeconomic slowdown?
7) How well can the sovereign credit fundamentals withstand global interest
rate hikes over the coming years?
8) How would a further increase in oil prices impact the sovereign fiscal
position?
9) How will credit conditions in India be impacted if there is a conflict
in North Korea?
10) What are the upside and downside risks to India's sovereign rating?
11) How has the sovereign upgrade impacted Moody's-rated public
sector banks?
12) Why are there so few ratings changes to the public sector banks following
the sovereign action?
13) Is there an impact on Moody's-rated private sector banks in
India?
14) How does the recently announced bank recapitalization plan help Indian
banks?
15) What is the rating impact on state-owned enterprises and non-financial
corporates?
Subscribers can access the report at:
http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1100033
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This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
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for the most updated credit rating action information and rating history.
William Foster
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
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Michael Taylor
MD-CCO APAC
Credit Strategy and Standards
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