Moody's ups ratings of SBI, HDFC Bank, EXIM India and IRFC

19 November, 2017, 00:52 | Author: Brenda Erickson
  • Moody's ups ratings of SBI, HDFC Bank, EXIM India and IRFC

"The decision to upgrade the ratings is underpinned by Moody's expectation that 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, and will likely contribute to a gradual decline in the general government debt burden over the medium term", it said. This upgrade puts Moody's one notch ahead of Fitch and S&P, which now has India on BBB- (stable), noted ANZ in a research report. "Baa3" is the lowest rating in the investment grade, just a notch above "junk" status. "Many who had doubts about India's reform process would now seriously introspect on their position", Finance Minister Arun Jaitley said in response.

Meanwhile, Congress communications in-charge Randeep Surjewala sought to downplay the rating upgrade, saying the same agency had miscalculated U.S. subprime mortgages before the economic meltdown.

Global rating agency Moody's has improved India's sovereign rating for the first time since 2004, citing state reforms to further enhance the economy's capacity to absorb shocks. Moody's has also upgraded India's local currency senior unsecured rating to Baa2 from Baa3 and its short-term local currency rating to P-2 from P-3.

Also, if foreign investors were willing to pour money into India without bothering much about Moody's - the other major agency, Standard & Poor's, incidentally, hasn't changed its sovereign rating from "BBB-" (lowest investment grade) since January 2007 - how does any upgrade or downgrade matter?

The Government "is going to do what it has to do on the domestic front - employment growth, economic growth, reviving investment", said Chief Economic Advisor Arvind Subramanian.

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"The reform program will thus complement the existing shock-absorbance capacity provided by India's strong growth potential and improving global competitiveness", it said. Economic Affairs Secretary Subhash Chandra Garg said the upgrade has recognised Government efforts on fiscal deficit, consolidation and debt control.

It, however, said the high public debt burden remains an important constraint on India's credit profile relative to its peers, notwithstanding the mitigating factors which support fiscal sustainability.

"We will have to see how the bond yields will move in the near term because the world market is choppy", said Jayesh Mehta, country treasurer, BofAML. It went on to list demonetisation, Aadhaar system of biometric accounts and targeted delivery of benefits through the Direct Benefit Transfer (DBT) system meant to reduce informality in the economy as other measures that had an impact.

Moody's forecast India's economic growth at 6.7 percent for the fiscal year ending March 2018 and expects it to climb to 7.5 percent in the next financial year. "GST has been regarded as the landmark reform of the Indian economy", he further added.

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