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India warned on sovereign rating
Publication Date : 06-09-2013
Like Standard and Poor's a couple of days ago, another global rating agency Moody's Investor Service yesterday warned India to be watchful of external macro-economic implications as they may ultimately decide the country's sovereign credit rating.
In a report released today, Moody's said: “India's sovereign credit profile in the fiscal year to March 31 (2014) will depend upon the growth outlook in the US, the European Union and China, the interest rate outlook after the US quantitative easing tapers off and trend in commodity prices as well as domestic factors such as farm output, domestic interest rates and the 2014 national elections.”
“India's sovereign rating outlook will depend on the depth and extent of current economic downturn and trend in the balance of payment situation,” said Moody's.
Market analysts say Moody's warning is in line with the finance minister P Chidambaram's statement in parliament today in which he admitted that the economy and the domestic currency are under stress although he asserted that he has drawn a "red line” to keep this year’s fiscal deficit below 4.8 per cent at any cost.
Moody's yesterday downgraded 11 Indian banks’, including SBI, ICICI Bank and HDFC Bank, subordinate debt rating citing increased bail-in risk.
The other banks affected are Axis Bank, Bank of Baroda, Bank of India, Canara Bank, IDBI Bank, Indian Overseas Bank, Syndicate Bank and Union Bank of India.
Although banking sector analysts fear this will make raising money offshore costly, the domestic lenders claim it is unlikely since deposit raising is more linked to the country's sovereign rating.
The Reserve Bank of India (RBI) has offered concessional swap rates to Indian banks to raise dollar deposits from non-resident Indians. The banks are looking ahead to mobilise US$10 billion deposits.
Analysts say the new central bank Governor Dr Raghuram Rajan's encouraging statement on need to infuse more transparency with reforms to revive growth improved the sluggish market sentiment, but a section of brokerages are still wary to vouch the sudden improvement in macro-economic situation.
The RBI chief hopes foreign currency non-resident (bank) deposits cum swap facility would stabilise the rupee. The currency weakness compelled the foreign investors to withdraw $2.3 billion from bond and stock markets in August.