Oct. 22, 2009 (The Hindu Business Line) --

Moody’s changed the systemic support input for Indian banks’ ratings to ‘Baa2’ from the ‘A1’ local currency deposit ceiling. (The new ‘Baa2’ systemic support anchor is placed three notches above the ‘Ba2’ local currency government debt rating.)

In Moody’s view, India has a highly supportive banking framework, demonstrated by the Government’s support of commercial banks either through capital injections or merger with stronger entities. The RBI has also demonstrated its supportive attitude by providing a currency (FC) swap window in the event of banks needing FC funds to repay their obligations.

In deciding whether the local currency-denominated deposits of a bank could be rated higher than the local currency-denominated debt issued by the Government due to systemic support, Moody’s considers a number of factors for each banking system: the size of the banking sector relative to the government’s resources; the level of stress in the banking system and the economy; the FC obligations of the banking system relative to the government’s own FC resources; political and historical patterns; and the possibility of any drastic shift in government priorities.

It has downgraded the global local currency (GLC) deposit rating of State Bank of India, ICICI Bank (NYSE:IBN) , Punjab National Bank, Bank of Baroda, Bank of India, Canara Bank, HDFC Bank (NYSE:HDB) , Union Bank of India, Axis Bank, Syndicate Bank and Oriental Bank of Commerce to ‘Baa2’ (the last two with a negative outlook), while IDBI Bank’s and Central Bank of India’s ‘Baa2’ GLC deposit ratings to ‘Baa3’.

While concluding its reviews Moody’s points out that the last rating action for all rated Indian banks above was taken on May 28 when the ratings were placed on review for possible downgrade.