Moody's India rating a step above junk, worst to come: Rahul Gandhi

Moody’s downgrades India’s sovereign rating maintains negative outlook

Moody’s downgrades India’s sovereign rating maintains negative outlook

Moody's has cut Tata Consultancy Services (TCS), the country's largest software exporter, rating to Baa1 negative from A3 negative in wake of downgrade of India's sovereign rating.

"Baa3" is the lowest investment grade - one level above the junk status.

With regard to ratings of banks, Moody's has downgraded the long-term local and foreign currency deposit ratings of HDFC Bank and SBI to Baa3 from Baa2, and the long-term issuer rating of EXIM India to Baa3 from Baa2, with negative outlook.

"The negative outlook reflects dominant, mutually-reinforcing, downside risks from deeper stresses in the economy and financial system that could lead to a more severe and prolonged erosion in fiscal strength than Moody's now projects", the agency said in a statement on Monday evening.

The downgrade comes days after India's central bank said it expects the economy will contract for the first time in more than four decades. The outlooks on all these ratings are negative.

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Moody's Investor Service was also quick to add that while today's downgrade was taken in the context of the COVID-19 pandemic, it was not exclusively driven by the economic effects of the novel coronavirus.

Moody's downgraded the long-term ratings on HDFC Bank Ltd. and State Bank of India, among others Tuesday, following the sovereign rating cut. The rating actions follow the downgrade of India's sovereign rating to Baa3 negative from Baa2 on June 1, 2020. "The long-term local currency bond and bank deposit ceilings were lowered to A2 from A1", the agency added.

India's credit crunch in the "undercapitalised" financial sector is unlikely to be resolved quickly, Moody's said.

"India faces a prolonged period of slower growth relative to the country's potential, rising debt, further weakening of debt affordability and persistent stress in parts of the financial system, all of which the country's policymaking institutions will be challenged to mitigate and contain", it said. It predicted a growth of 8.7% in the fiscal year of 2021 and closer to 6% thereafter. Some 122 million Indians were forced out of jobs last month alone, the Center for Monitoring Indian Economy said on Monday, adding that the unemployment rate in May rose to 23.48 percent as a result of the coronavirus pandemic lockdown. "The way I would look at is.rather than being in denial, I will go through Moody's report and see where are the areas where we can improve", he said at CII annual meet.

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