NOTE: On June 2, 2020, the List of Affected Credit Ratings accessible via hyperlink from this press release was corrected to include debt level and new debt level outlooks in the Debt Level and New Debt Level columns. Revised Release follows.
Singapore, June 02, 2020 -- Moody's Investors Service has taken rating actions on the following
11 Indian banks:
(1) Bank of Baroda (BOB),
(2) Bank of India (BOI),
(3) Canara Bank (Canara),
(4) Central Bank of India (CBI),
(5) Export-Import Bank of India (EXIM India),
(6) HDFC Bank Limited (HDFC Bank),
(7) Indian Overseas Bank (IOB),
(8) IndusInd Bank Limited (IndusInd),
(9) Punjab National Bank (PNB),
(10) State Bank of India (SBI) and
(11) Union Bank of India (UBI).
Moody's has downgraded the long-term local and foreign currency
deposit ratings of HDFC Bank and SBI to Baa3 from Baa2, and the
long-term issuer rating of EXIM India to Baa3 from Baa2.
Moody's has maintained their rating outlooks as negative.
The deposit ratings of these banks are at the same level as India's
Baa3 sovereign rating. Consequently, Moody's has downgraded
HDFC Bank's Baseline Credit Assessment (BCA) to baa3 from baa2.
Moody's has placed the Baa3 long-term local and foreign currency
deposit ratings of BOB, BOI, Canara and UBI and their ba3
BCAs under review for downgrade.
Moody's has downgraded IndusInd's long-term local and
foreign currency deposit ratings to Ba1 from Baa3 and its BCA to ba2 from
ba1. The rating outlook is negative.
Moody's has affirmed PNB's long-term local and foreign
currency deposit ratings at Ba1 and its BCA at b1. The rating outlook
of PNB is changed to stable from positive.
And finally, in the case of CBI and IOB, Moody's has
affirmed their long-term local and foreign currency deposit ratings
at Ba2 and their BCAs at b2. The rating outlook of these issuers
is maintained as stable.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL425106
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
ECONOMIC DISRUPTION CAUSED BY THE CORONAVIRUS OUTBREAK AND THE DOWNGRADE
OF THE SOVEREIGN RATING ARE THE KEY DRIVERS FOR TODAY'S RATING ACTIONS
The rating action on Indian banks follows Moody's recent downgrade of
the Indian government's issuer rating to Baa3 from Baa2 with a negative
outlook. See Moody's press release https://www.moodys.com/research/--PR_424605
published on 1 June 2020 for details.
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, volatile oil prices, and asset price
declines are creating a severe and extensive credit shock across many
sectors, regions and markets.
The Indian banking sector has been affected given the disruptions to India's
economic activity from the coronavirus outbreak, which is weakening
borrowers' credit profiles. Moody's regards the coronavirus
outbreak as a social risk under its environmental, social and governance
(ESG) framework, given the substantial implications for public health
and safety.
Disruptions from the coronavirus outbreak will worsen the economic slowdown
in India that has been underway in the past year and will accelerate a
deterioration in the banks' asset quality and profitability.
Stimulus measures announced by the Indian government and the RBI since
the start of the outbreak will help mitigate some of the credit pressures,
but the longer and broader the economic slowdown, the more these
banks will face asset quality and profitability issues. At the
same time, heightened liquidity stress at non-bank financial
institutions will pose a risk to the stability of the broad financial
system, given banks' large direct exposures to these entities.
Moody's expects the standalone credit profiles or BCAs of most rated
public sector banks (PSBs) to deteriorate as the economic shock will strain
their already weak solvency. Also, in the absence of external
capital support from the Indian government, Moody's expects
the capitalization of the PSBs to deteriorate. Despite the near-term
asset quality, profitability and capital strain, Moody's
expects their funding and liquidity to remain a key credit strength.
For the private sector banks covered in this rating action, in Moody's
opinion, their asset quality and profitability will also deteriorate
driven by rising loan delinquencies and defaults due to the coronavirus
outbreak, which will result in an increase in credit costs.
However, most rated private sector banks have better loss absorbing
capacity and stronger BCAs than their PSB peers because of stronger capitalization
and loan loss reserves.
Today's action reflects the impact on the Indian banks of the breadth
and severity of the economic shock, and the deterioration in credit
quality it has triggered. Moody's has maintained India's
Macro Profile, that serves as an input for the bank ratings,
at Moderate.
DOWNGRADE OF RATINGS OF EXIM INDIA, HDFC BANK AND SBI
EXIM India's issuer ratings and SBI's deposit ratings are
at the same level as the sovereign rating because of the uplift to their
ratings, based on Moody's assumption that the two banks will
receive government support in times of need. Consequently,
the downgrade of the sovereign rating has led to the downgrade of their
long-term issuer and deposit ratings to Baa3 from Baa2.
For EXIM Bank, Moody's has affirmed its ba3 BCA as the bank's
strong capital provides a buffer to absorb incremental asset quality stress.
In the case of SBI, Moody's expects its asset quality and
profitability to weaken, which could hurt its capitalization.
As a result, Moody's has placed its ba1 BCA under a review
for downgrade. A downgrade of SBI's BCA would also result
in the downgrade of SBI's foreign currency subordinate MTN program
rating that applies to the Basel III compliant Additional Tier 1 securities
(Preference Stock non-cumulative) and other junior securities.
As a result, Moody's has placed those ratings under a review
for downgrade.
As for HDFC Bank, Moody's has downgraded its BCA to baa3 from
baa2 given the strong linkages between the bank and the sovereign,
including its large direct exposure to government debt and exposure to
common underlying operating conditions. Moody's has also
downgraded HDFC Bank's long-term deposit ratings to Baa3
from Baa2 reflecting the downgrade of the sovereign rating. The
negative outlook indicates Moody's expectation that HDFC Bank's
ratings and BCA will likely move in tandem with India's sovereign
rating.
HDFC Bank's Baa3 ratings do not incorporate any uplift due to government
support in times of need as the bank's BCA is already at same level
as India's sovereign rating. However, in today's
rating action Moody's has lowered its assumption of systemic support
for HDFC Bank to 'moderate' from 'high'. This change incorporates
Moody's expectation, based on the bailout of Yes Bank Limited (Yes
Bank, Caa1 Positive, Ca), that government support for
private sector banks will not be as forthcoming and timely as Moody's
previously assumed.
PLACING OF BOB, BIO, CANARA AND UBI'S RATINGS UNDER
REVIEW FOR DOWNGRADE
Moody's has placed the ratings, BCAs, Counterparty Risk
Ratings (CRR) and Counterparty Risk Assessment (CRA) of BOB, BOI,
Canara and UBI under review for downgrade. The review for downgrade
reflects Moody's expectation that the forward-looking improvements
to the three bank's credit profiles that Moody's had previously
assumed will be more difficult in the current environment.
DOWNGRADE OF INDUSIND'S BCA AND RATINGS
Today's rating action concludes the review for downgrade initiated on
3 April 2020.
The downgrade of IndusInd's BCA to ba2 from ba1 incorporates the
risks to bank's asset quality and profitability amid the deteriorating
macro environment and financial market volatility. IndusInd's funding
is weak compared with other rated Indian banks, as reflected by
its high deposit concentration and low share of retail deposits.
This weaker funding makes the bank more susceptible to dislocations in
financial markets, including in terms of wholesale funding sources.
IndusInd's Ba1 long-term deposit rating incorporates a one-notch
uplift for systemic support from the Indian government based on Moody's
assessment of a moderate probability of support from the government in
times of need.
AFFIRMATION OF PNB'S LONG-TERM DEPOSIT RATINGS, BCA
AND CHANGE IN OUTLOOK TO STABLE FROM POSITIVE
In the case of PNB, Moody's expects the strain on the asset
quality and profitability, due to the coronavirus outbreak,
will be largely mitigated by the improvements in the bank's credit
profile over the past year. As such, Moody's expects
the bank's BCA and ratings to remain stable at the current level,
against its earlier expectation of an improvement to its BCA and ratings.
Hence, Moody's has affirmed PNB's ratings and changed
the outlook to stable from positive.
AFFIRMATION OF CBI AND IOB'S LONG-TERM DEPOSIT RATINGS AND
BCA WITH A STABLE OUTLOOK
In the case of CBI and IOB, Moody's expects the asset quality
and profitability pressures due to the coronavirus outbreak will be largely
mitigated by the improvements in the banks' credit profile over
the past year. As such, Moody's expects the banks'
BCAs and ratings to remain stable at the current level. As a result,
Moody's has affirmed CBI and IOB's ratings and BCA with a
stable outlook.
RATING ACTION ON COUNTERPARTY RISK RATING (CRR) AND COUNTERPARTY RISK
ASSESSMENT (CRA) OF HDFC BANK, PNB, CBI AND IOB
Moody's has downgraded the long-term CRRs and CRAs of:
(1) HFDC Bank to Baa3 and Baa3(cr) from Baa1 and Baa1(cr), (2) PNB
to Ba1 and Ba1(cr) from Baa3 and Baa3(cr), (3) CBI and IOB to Ba2
and Ba2(cr) from Ba1 and Ba1(cr). For PNB, Moody's
has also downgraded its short-term CRR and CRA to NP and NP(cr)
from P-3 and P-3(cr). The CRRs and CRAs of these
banks are now rated in line with their deposit ratings.
Moody's has also assigned a foreign currency CRR of Ba1/NP to PNB,
in line with its deposit rating.
The downgrade of these banks' CRAs and CRRs is driven by Moody's
expectation that in the case of a bank rescue, the Indian regulators
will not differentiate between banks' operational creditors and
depositors as evidenced by the Yes Bank case. Following this rating
action, the CRRs and CRAs of all rated Indian banks are now aligned
with their deposit ratings.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
WHAT COULD CHANGE THE RATING UP
EXIM India, HDFC Bank, and SBI
Given the negative outlook, EXIM India, HDFC Bank and SBI's
ratings are unlikely to be upgraded in the next 12-18 months.
Nevertheless, the rating outlook could be changed to stable if India's
rating outlook is stabilized. An upgrade of HDFC Bank's BCA
is unlikely, because the BCA is already at the same level as the
sovereign rating.
Moody's could confirm SBI's ba1 BCA if Moody's expects
the bank to withstand the asset quality and profitability pressures without
materially weakening its loss absorbing buffers including capitalization
and loan loss reserves.
Moody's could upgrade the BCA of EXIM India if the bank demonstrates sustained
improvement in its solvency, bringing the credit profile in line
with similar rated peers in the region.
BOB, BOI, CANARA, and UBI
Given the review for downgrade, Moody's is unlikely to upgrade
their ratings over the next 12-18 months.
Nevertheless, Moody's will confirm their ratings, if
in the agency's opinion the banks will be able to withstand the
asset quality pressures without depleting their loss absorbing buffers.
A large capital support from the Indian government, that helps improve
their capitalization, can also lead to a stabilization of their
BCAs and ratings.
INDUSIND
Given the negative outlook, Moody's is unlikely to upgrade
the bank's ratings over the next 12-18 months.
Moody's could change the outlook to stable if the bank is able to
(1) demonstrate a significant improvement in its funding profile,
(2) maintain asset quality at current levels over the next 12-18
months and (3) improve its solvency buffers, including by way of
an external capital raise.
CBI, IOB and PNB
Given the stable outlook, Moody's is unlike to upgrade their
rating in the next 12-18 months.
Moody's could upgrade the BCAs of CBI, IOB and PNB if the banks
demonstrate sustained improvement in their solvency, bringing their
credit profiles in line with similarly rated peers in the region.
WHAT COULD CHANGE THE RATING DOWN
EXIM India, HDFC Bank, and SBI
Moody's would downgrade their ratings if India's sovereign rating
is further downgraded. Moody's would also downgrade the banks'
BCAs if their financial fundamentals deteriorate significantly.
BOB, BOI, CANARA, and UBI
A downgrade of their BCAs will lead to a downgrade of their ratings.
During the review period, Moody's will focus on the bank's
ability and plans to strengthen their loss absorbing buffers -
capitalization and loan loss reserves, ahead of the anticipated
deterioration in asset quality and earnings .
Any indication of diminishing government support for the banks could also
lead to a downgrade of their ratings.
INDUSIND
INDUSIND's BCA and Adjusted BCA could be downgraded if there is
a deterioration in its (1) funding profile, (2) asset quality,
such that either the NPL ratios or credit costs increase significantly
from current levels, and (3) profitability at the pre-provisioning
level.
The final rating could be downgraded if the BCA is downgraded.
CBI, IOB and PNB
Moody's will downgrade their BCAs and ratings if the agency expects
their solvency to deteriorate significantly because of an increase in
problem loans or a significant decline in earnings, which weakens
their capitalization. Any indication of diminishing government
support for the banks can also lead to a downgrade of their ratings.
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Bank of Baroda is headquartered in Mumbai and reported total assets of
INR10.9 trillion at 31 December 2019.
Bank of India is headquartered in Mumbai and reported total assets of
INR6.3 trillion at 31 December 2019.
Canara Bank is headquartered in Bangalore and reported assets of INR 7.2
trillion at 31 December 2019.
Central Bank of India is headquartered in Mumbai and reported total assets
of INR3.5 trillion at 31 December 2019.
Export-Import Bank of India is headquartered Mumbai and reported
total assets of INR 1.2 trillion at 30 September 2019.
HDFC Bank Limited is headquartered in Mumbai and reported total assets
of INR15.3 trillion at 31 March 2020.
IndusInd Bank Limited is headquartered in Mumbai and reported total assets
of INR3.1 trillion at 31 March 2020.
Indian Overseas Bank is headquartered in Chennai and reported total assets
of INR2.4 trillion at 31 December 2019.
Punjab National Bank is headquartered in Delhi and reported total assets
of INR8.2 trillion at 31 December 2019.
State Bank of India is headquartered in Mumbai and reported total assets
of INR37.5 trillion at 31 December 2019.
Union Bank of India is headquartered in Mumbai and reported assets of
INR5.3 trillion at 31 December 2019.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are all solicited credit
ratings. Additionally, the List of Affected Credit Ratings
includes additional disclosures that vary with regard to some of the ratings.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL425106
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Disclosure to Rated Entity
• Endorsement
• Lead Analyst
• Releasing Office
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Alka Anbarasu
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
