Moody's downgrades ratings of ICICI, HDFC, Axis bank
May 14, 2012, 04.58PM IST
NEW DELHI: Credit ratings agency Moody's on Monday downgraded India's three top private sector lenders -- ICICI Bank, HDFC Bank and Axis Bank -- on growing concerns over the country's sovereign debt ratings.
Moody's lowered the standalone ratings of these top three private sector lenders to the sovereign ratings level of D+ from earlier C-. The lenders' hybrid rating is also lowered a notch to Baa2 from Baa3.
"The downward revision to the three Indian banks' standalone ratings reflects Moody's assessment that their creditworthiness are highly correlated with that of the Indian government's credit strength," Moody's said in a report.
For all three banks, the key drivers for the rating action were: relatively low level of cross-border diversification of their operations; high level of balance-sheet exposure to domestic sovereign debt, compared with their capital bases; franchise resilience and intrinsic strength within the operating environment; and absence of ongoing support from foreign ownership.
"Our review indicated that there are little, if any, reasons to believe that these banks would be insulated from a government debt crisis," Moody's said.
Moody's pointed out that all these three lenders have significant direct exposure to the Indian government securities: equivalent to 239 percent of tier-1 capital at Axis Bank, 226 percent of tier-1 capital of HDFC Bank, and 143 percent of tier-1 capital at ICICI Bank.
"In addition, these three banks are primarily domestic institutions with similar macroeconomic exposures as the sovereign government," it said.
With assets of Rs.4,736.47 billion as on March 31, 2012, ICICI Bank is India's largest private sector lender followed by HDFC Bank with assets of Rs.3,379.10 billion and Axis Bank Rs 2,856.28 billion.
Moody's downgrades ratings of ICICI, HDFC, Axis bank - The Times of India
Never Mind Europe. Worry About India.
By TYLER COWEN
THE economic slowdown in India is one of the worlds biggest economic stories, but it is commanding only a modicum of attention in the United States.
It may not even look like a slowdown because by developed standards, Indias growth estimated by the International Monetary Fund at 6.9 percent for 2012 is still strong. But a slowdown it is: the economy has decelerated from projected rates of more than 8 percent, and negative momentum may bring a further decline. The government reported year-over-year growth in the October-through-December quarter of only 6.1 percent.
What is disturbing is that much of the decline in the growth rate is distributed unevenly, with the greatest burden falling on the poor. If the slower rate continues or worsens, many millions of Indians, for another generation, will fail to rise above extreme penury and want. The problems of the euro zone are a pittance by comparison.
China commands more attention, but Scott B. Sumner, the Bentley College economist, has pointed out it is India that is likely to end up as the worlds largest economy by the next century. Chinas population is likely to peak relatively soon while Indias will continue to grow, so under even modestly optimistic projections the Indian economy will be No. 1 in terms of total size.
India also is a potential force for energizing the economies of Bangladesh, Nepal and, perhaps someday, Pakistan and Myanmar. The losses from a poorer India go far beyond the countrys borders; furthermore, the wealthier India becomes, the stronger the allure of democracy in the region.
Why is Indias economic growth slowing? The causes are varied. They include a less than optimal attitude toward foreign business and investment: recall the Indian governments reversal of its previous willingness to let Wal-Mart enter the retailing sector. The government also has been assessing retroactive taxation on foreign businesses years after incomes are earned and reported. Another problem is the countrys energy infrastructure, which has not geared up to meet industrial demand. Coal mining is dominated by an inefficient state-owned company and there are various price controls on both coal and natural gas. Over all, the country does not seem headed toward further liberalization and market-oriented reforms.
These problems can be solved. More troubling are the causes that have no easy fix.
Agriculture employs about half of Indias work force, for example, yet the agricultural revolution that flourished in the 1970s has slowed. Crop yields remain stubbornly low, transport and water infrastructure is poor, and the legal system is hostile to foreign investment in basic agriculture and to modern agribusiness. Note that the earlier general growth bursts of Japan, South Korea and Taiwan were all preceded by significant gains in agricultural productivity.
For all of Indias economic progress, it is hard to find comparable stirrings in Indian agriculture today. It is estimated that half of all Indian children under the age of 5 suffer from malnutrition.
Another worry is that Indias services-based growth spurt may have run much of its course. Call centers, for example, have succeeded by building their own infrastructure and they often function as self-contained, walled minicities. Its impressive that those achievements have been possible, but these economically segregated islands of higher productivity suggest that success is achieved by separating oneself from the broader Indian economy, not by integrating with it.
India also has one of the worlds most unwieldy legal systems, and one that seems particularly hard to reform. On the World Banks Doing Business Index, the country ranks 132 out of 183 listed countries and regions, behind Honduras and the West Bank and Gaza, and just ahead of Nigeria and Syria. One undercurrent of talk is that the days of the license Raj have returned, referring to the countrys earlier subpar economic performance under a regime of heavy government regulation.
ON the positive side of the ledger, the country retains a population with remarkable talent, energy and entrepreneurship. It has worldwide networks of trade and migration, and world-class achievements in entertainment and design, among numerous other strengths. Nonetheless, the previous pace of progress no longer seems guaranteed.
India may not be alone in this slowdown. There is a more general worry that the grouping of disparate giants known as the BRIC nations Brazil, Russia, India and China has, for some reason, lost much of its previous momentum. Last year Brazil grew at only a 2.7 percent rate, down from 7.5 percent, and Chinese and Russian G.D.P. growth are slowing too, to an unknown extent and duration. In the past, many countries engaged in catch-up growth have suddenly slowed and hit plateaus, although economists do not have firmly established theories as to when and why this happened. In any case it remains a real danger.
In the short run, we often focus on headlines, elections and fights between personalities and political parties. But the world is shaped by deeper structural forces, such as resources, technologies, demographics and economic growth rates. We ignore Indias troubling trends at our peril.
Tyler Cowen is a professor of economics at George Mason University.
http://www.nytimes.com/2012/05/06/business/economic-view-forget-europe-worry-about-india.html
