S&P downgrades 12 banks, NTPC, IOC, NHPC
24 Feb 2009
Following its India soverign rating outlook downgrade to negative on account of the rise in the fiscal deficit, S&P has put state-owned power and oil companies NTPC, IOC, NHPC, along with 12 private and nationalised banks to negative.
Its company ratings for the thre companies are:
- NTPC Ltd. (BBB-/Negative/--);
- NHPC Ltd. (BBB-/Negative--); and
- Indian Oil Corp. Ltd. (BB+/Negative/--).
S&P said in a statement, "The outlook revisions follow the similar action taken on the sovereign credit ratings on India (BBB-/Negative/A-3). The outlook revision n the sovereign reflects our view that India's fiscal position has deteriorated to a level that is not sustainable over the medium term.
The outlooks were revised on NTPC, NHPC, and Indian Oil because the ratings are highly influenced by the sovereign rating, given the companies' strategic importance to the government's energy policy and the government's considerable influence over these entities.
Similarly its outlook on the 12 Indian banks to have been revised to negative as a direct fallout of its sovereign rating action, saying that it had revised the outlook on the counterparty credit ratings for the following Indian banks to negative from stable:
-Axis Bank (BBB-/A-3)
- Bank of Baroda (BBB-/A-3)
- Bank of India (BBB-/A-3)
- Canara Bank (BBB-/A-3)
- HDFC Bank Ltd. (BBB-/A-3)
- ICICI Bank Ltd. (BBB-/A-3)
- IDBI Bank Ltd. (BBB-/A-3)
- Indian Overseas Bank (BBB-/A-3)
- Indian Bank (BBB-/A-3)
- State Bank of India (BBB-/A-3)
- Syndicate Bank (BBB-/A-3)
- Union Bank of India (BBB-/A-3)
Standard & Poor's does not rate Indian banks above the sovereign rating on India because of the direct and indirect influence that the sovereign in distress would have on a bank's operations, including the bank's ability to service foreign currency obligations. This belief stems from the following factors:
(1) banks in India are subject to policy and regulation by the government;
(2) they invest a significant portion of funds in government securities;
(3) a high proportion of their revenue streams emanate from India; and
(4) a large number of Indian banks are majority owned by the government.
"The negative outlook on the 12 banks reflects that on the sovereign ratings, after factoring in implicit support from the Indian government. However, sharp deterioration in a bank's stand-alone financial performance may lead to a rating downgrade independent of the sovereign ratings' direction," the rating agency said in a statement.
