The global rating agency cited economic disruption caused by Covid-19 and sovereign downgrade as the reason for the ratings review.

A day after the sovereign downgrade, Moody’s on Tuesday downgraded issuer ratings of eight big companies and four banks. They include Tata Consultancy Service (TCS), Infosys, Oil and Natural Gas Corporation (ONGC), State Bank of India (SBI), HDFC Bank, Exim Bank and IndusInd Bank.

The global rating agency cited economic disruption caused by Covid-19 and sovereign downgrade as the reason for the ratings review.

While it affirmed the long-term rating of Mukesh Ambani-led Reliance Industries, Moody’s revised the company’s outlook to ‘negative’ from ‘stable’.

“The affirmation of RIL’s Baa2 issuer rating reflects Moody’s view that its credit metrics remain appropriately positioned for its rating,” Moody’s said.

The change in RIL’s outlook to ‘negative’ from ‘stable’ is in line with the downgrade of the Indian sovereign rating with a negative outlook.

According to Moody’s, RIL cannot be rated more than one notch above the Indian sovereign.

The other companies downgraded by Moody’s are ONGC, Hindustan Petroleum (HPCL), Oil India (OIL), Indian Oil (IOC), Bharat Petroleum (BPCL) and Petronet LNG.

Moody’s has kept ratings of Bank of Baroda (BOB), Bank ofIndia (BOI), Canara Bank and United Bank of India (UBI) under review for downgrade. However, it has affirmed the rating of three public sector lenders — Punjab National Bank (PNB), Central Bank of India (CBI) and Indian Overseas Bank (IOB).

“Moody’s has downgraded the long term local and foreign currency deposit ratings of SBI and HDFC Bank to Baa3 from Baa2,” the rating agency said in its release.

Moody’s said it suspected that the asset quality and profitability of SBI will weaken. As a result, Moody’s placed SBI’s baseline credit assessment(BCA) under a review for a downgrade. BCA is a measure of the probability that a bank will require support to avoid default. A downgrade of SBI’s BCA would also result in the downgrade in the rating of SBI’s foreign currency subordinate medium-term note (MTN) programme.

Similarly, Moody’s has downgraded HDFC Bank’s BCA to ‘baa3’ from ‘baa2’. Moody’s assumes that SBI and HDFC Bank will receive government support in times of need. However, Moody’s was of the view that government support for private sector banks would not be as forthcoming and timely as before. Moody’s lowered its assumption of systemic support for HDFC Bank to ‘moderate’ from ‘high’.

Moody’s added that asset quality and profitability of private banks would also deteriorate due to rising loan delinquencies and defaults amid the novel coronavirus outbreak.The rating agency feared that it could lead to rise in credit costs for private banks. “Most rated private sector banks have better loss absorbing capacity and stronger BCAs than their public sector banks (PSB) peers,” Moody’s said.

The rating agency assumes that private banks have stronger capitalisation and loan loss reserves in comparison to PSBs.