ICICI and 8 other banks rating upgraded from Negative to Stable by Moody's

Global ratings agency Moody's on October 6 changed the rating outlook of nine Indian banks to "stable" from "negative". These lenders include Axis Bank, Bank of Baroda, Canara Bank, HDFC Bank, ICICI Bank, Punjab National Bank, Export-Import Bank of India, State Bank of India (SBI) and Union Bank of India.

• What's the story?

Moody's Investors Service on Wednesday raised the rating outlook for 18 Indian corporates and banks. This follows the upgrade by the US-based rating agency in India's sovereign rating outlook to 'stable' from 'negative' on Tuesday. The agency had affirmed the sovereign rating at 'Baa3'. The nine companies whose rating outlook has been revised upwards are RIL, TCS, Infosys, ONGC, Petronet LNG Ltd, UltraTech Cement, Oil India, Indian Oil Corporation, and Hindustan Petroleum Corporation Ltd (HPCL). The agency also affirmed the rating on privatization-bound Bharat Petroleum Corporation (BPCL) but maintained the 'negative' outlook. The nine banks whose outlook has been revised to 'stable' are SBI, Axis Bank, Bank of Baroda, Canara Bank, Axis Bank, HDFC Bank, ICICI Bank, PNB, Union Bank, and EXIM Bank. 

"The decision to change the outlook to stable reflects Moody's view that the downside risks from negative feedback between the real economy and financial system are receding," Moody's said in a report on October 5. Announcing the move, Moody's said with higher capital cushions and greater liquidity, banks, and non-bank financial institutions pose a much lesser risk to the sovereign than previously anticipated. "And while risks stemming from a high debt burden and weak debt affordability remain, Moody's expects that the economic environment will allow for a gradual reduction of the general government fiscal deficit over the next few years, preventing further deterioration of the sovereign credit profile," the agency said. 

• What's Next? 

The rating agency highlighted that the affirmation of state-run banks reflects the fact that despite the significant economic challenges since the onset of the pandemic, their asset quality has only deteriorated modestly while capital has improved. This is quite positive for the Indian economy as another economic powerhouse, China is currently facing a major challenge because of the Evergrande Group crisis.