Mumbai, April 30: Moody's Investors Service today said it had placed on review its ratings of India's top three private sector banks for a possible downgrade as they are now ruling above the country's sovereign debt rating. The three banks are ICICI Bank, HDFC Bank and Axis Bank.
Moody's rates India at Baa3, which is the lowest investment grade level.
The rating agency said all the three banks now had a standalone financial strength rating, or baseline credit assessments, of C- /Baa2. The review of their current ratings may take around three months.
It said the creditworthiness of financial institutions with low cross-border operational diversification, or high balance-sheet exposures to the debt of their domestic sovereign, is closely linked to that sovereign's credit strength. Banks with these characteristics are unlikely to have standalone credit assessments above the sovereign.
Moody's added that it would assess the degree to which the issuer's standalone credit profile was co-related with that of the sovereign. It will take into account the extent to which the banks' business depends on the domestic macroeconomic and financial environment and direct or indirect exposures to domestic sovereign debt compared with their capital bases. Some of the other rating drivers include franchise resilience and intrinsic strength within the operating environment.
"Overall, for most of the affected banks, Moody's expects that most standalone credit assessments will be rated at the same level as their domicile sovereigns' debt ratings, once the rating agency has concluded the reviews," it observed.
Moody's warning comes only days after Standard and Poor's (SandP) lowered India's rating outlook to negative and warned of a downgrade if there was no progress in the fiscal situation and the economy slowed down further.
SandP cut India's outlook to negative from stable though it retained the BBB- rating, which is the lowest investment grade. A downgrade will reduce India's sovereign credit rating to junk status.
The announcement did not make any impact on the share price of ICICI Bank, which continued to run up on the back of better-than-expected fourth-quarter results. On the BSE, the share ended 1.44 per cent higher at Rs 881.45. However, HDFC Bank and Axis Bank ended in the red.
Scan on LIC
Moody's is also reviewing the rating of state-owned LIC for a possible downgrade over its huge exposure to government bonds.