(By Indranil Sen Gupta) DOWN FALL CONTINUES.
Well it seems that S&P is now very stringent in terms of rating after the debacle of its rating mistake in 2008 of US economy and its financial system. Today S&P has slashed the outlook on 21 Indian companies comprising of top banks, software exporters and public sector undertakings. It was in line with yesterdays call on Indian economic outlook. Don't misunderstand that S&P is angry on Indian economy and that's why slamming up one after another blows on Indian economy. According to S&P it has cuts its rating outlook to negative from stable of the following companies
1. State Bank of India,
2. ICICI Bank,
8. Wipro and
10. Export-Import Bank of India,
11. Indian Railway Finance Corp,
12. Power Finance Corp,
14. Axis Bank,
15. Bank of India,
16. IDBI Bank,
17. Indian Overseas Bank,
18. Indian Bank,
19. Syndicate Bank,
20. Union Bank of India and
S&P has also affirmed the 'BBB-' long- term issuer credit ratings of all the 21 entities. The focus of S&P was mainly towards India's banks due to its huge NPA in its books of accounts. This recent rate of RBI will help the banking system to restructure many NPA.I have already made comments on this very particular matter in my previous writings that RBI will only act for its banking system and less for the corporate India. RBI is mainly focused to keep its banking system to reasonable level where NPA doesn't become similar to US banking system failure.
COLLATERAL DAMAGE OF DOWNGRADE.
The downgrade rating will create a collateral affect for the Indian economy in coming quarters. Borrowing cost will spook up which will make difficult for the Indian companies to raise overseas capital. This rating will degrade the confidence of investors, making the fragile financial market even worse. It will increases the global risk premium level by making the global market more sensitive to the Indian market investments. The biggest risk will be that it will damage the interests of Indian debt holders such as China, Japan and Russia as Indian treasury bonds lose their superior international status. Bond market will face the toughest times as Indian bonds will face difficulty in searching bond buyers from overseas market.