Ratings agency Moody's on Tuesday downgraded the long-term local and foreign currency deposit ratings of HDFC Bank and SBI to Baa3 from Baa2, as part of its ratings action on 11 Indian banks. It also placed long-term ratings of Bank of Baroda, Canara Bank, Bank of India and United Bank under review for downgrade. The actions come just a day after Moody's downgraded India's sovereign rating from 'Baa2' to 'Baa3', citing challenges in implementation of policies to mitigate risks of a sustained period of low growth and deteriorating fiscal position. In fact, in its release, announcing the ratings action on the banks, Moody's cited the downgrading of India's ratings as one of the reasons.
"Economic disruption caused by the coronavirus outbreak and the downgrade of the sovereign rating are the key drivers for today's rating actions," the release stated.
"The Indian banking sector has been affected given the disruptions to India's economic activity from the coronavirus outbreak, which is weakening borrowers' credit profiles," it added.
Moody's also downgraded ratings of IndusInd Bank and Export-Import Bank of India (EXIM India), changing outlook on Punjab National Bank from 'stable' to positive and maintaining its stance on Central Bank of India and Indian Overseas Bank.
Moody's predicted downgrades for more public sector banks (PSBs) as well. "Moody's expects the standalone credit profiles or BCAs of most rated public sector banks (PSBs) to deteriorate as the economic shock will strain their already weak solvency," the release said.
For private sector banks, Moody's said that their asset quality and profitability will deteriorate due to rising loan delinquencies and defaults.