Moody's rating upgrade may aid banks' capital raising plans
, ET Bureau|
Updated: Nov 17, 2017, 07.09 PM IST
Indian banks may find it a little easier now to boost their capital adequacy by borrowing at a lower cost and raising equity capital both from the domestic and overseas markets as rating upgrade by Moody’s Investors Service would improve investor confidence.
Even if the other two global rating firms – Fitch and S&P – do not follow it in a hurry, investors expect at least a 25 basis points reduction in borrowing costs for state-run banks which have been reeling under stress with steep sticky loan ratios and shrinking capital ratios.
“With the ratings upgrade, the borrowing cost for India and its corporates will come down,” State Bank of India chairman Rajnish Kumar said. “Foreign investors who have been constrained in the past can also increase their investment limits. This is a reaffirmation of how the world and international investors view India.”
Moody's Investors Service has also upgraded the long-term ratings of four Indian financial institutions including SBI to Baa2 from Baa3. The other three are Export-Import Bank of India, HDFC Bank and Indian Railway Finance Corporation.
“It’s a reflection of a lot of action by the government. This upgrade would improve confidence on the economy and help Indian entities including banks borrow at a lower cost,” said Kalpesh Mehta, partner, Deloitte India.
Moody’s said that the government's credit strength is an important input for deposit and debt ratings for financial institutions, as it impacts its assessment of the government's capacity to provide support in times of stress.
The government will inject Rs 2.11 lakh crore in Indian banks by a combination of bonds, budgetary support and share sale but several of them need to tap the market as well to boost business and comply with Basel III rules.
Punjab National Bank, for instance, is looking to raise about Rs 5000 crore via share sell. Bank of Baroda will next week discuss a plan to raise Rs 6,000 crore via QIP or rights issue.
"A one notch revision may not be huge in terms of improvement in credit risk but investors typically like to invest in a country where the government is pushing a reform," said Madan Sabnavis, chief economist at CARE Ratings.
Several lenders such as United Bank of India need to raise capital from market to bring the government holding down to 75% by next year to comply with Securities & Exchange Board of India rules.
Moody's has also upgraded HDFC Bank's baseline credit assessment (BCA) and adjusted BCA to baa2 from baa3.
Investors gave a thumbs up to the sovereign rating rating upgrade pushing the S&7P BSE Bankex 1.17% higher to 29241.86 Friday.
Even if the other two global rating firms – Fitch and S&P – do not follow it in a hurry, investors expect at least a 25 basis points reduction in borrowing costs for state-run banks which have been reeling under stress with steep sticky loan ratios and shrinking capital ratios.
“With the ratings upgrade, the borrowing cost for India and its corporates will come down,” State Bank of India chairman Rajnish Kumar said. “Foreign investors who have been constrained in the past can also increase their investment limits. This is a reaffirmation of how the world and international investors view India.”
Moody's Investors Service has also upgraded the long-term ratings of four Indian financial institutions including SBI to Baa2 from Baa3. The other three are Export-Import Bank of India, HDFC Bank and Indian Railway Finance Corporation.
“It’s a reflection of a lot of action by the government. This upgrade would improve confidence on the economy and help Indian entities including banks borrow at a lower cost,” said Kalpesh Mehta, partner, Deloitte India.
Moody’s said that the government's credit strength is an important input for deposit and debt ratings for financial institutions, as it impacts its assessment of the government's capacity to provide support in times of stress.
The government will inject Rs 2.11 lakh crore in Indian banks by a combination of bonds, budgetary support and share sale but several of them need to tap the market as well to boost business and comply with Basel III rules.
Punjab National Bank, for instance, is looking to raise about Rs 5000 crore via share sell. Bank of Baroda will next week discuss a plan to raise Rs 6,000 crore via QIP or rights issue.
"A one notch revision may not be huge in terms of improvement in credit risk but investors typically like to invest in a country where the government is pushing a reform," said Madan Sabnavis, chief economist at CARE Ratings.
Several lenders such as United Bank of India need to raise capital from market to bring the government holding down to 75% by next year to comply with Securities & Exchange Board of India rules.
Moody's has also upgraded HDFC Bank's baseline credit assessment (BCA) and adjusted BCA to baa2 from baa3.
Investors gave a thumbs up to the sovereign rating rating upgrade pushing the S&7P BSE Bankex 1.17% higher to 29241.86 Friday.
