New Delhi: Differing with the downgrade accorded by Moody's, leading ratings agency Standard & Poor's has upgraded the Indian banking sector saying its domestic regulations are in line with international standards. (Agencies)
"In our view, banking regulations in India are in line with international standards and the regulator (RBI) has a moderately successful track record," S&P said while upgrading the risk profile (BICRA) a notch higher to 'Group 5'.
The latest BICRA (Banking Industry Country Risk Assessments) of S&P comes a day after US-based Moody's changed the outlook for the sector to negative from stable, a move which evoked sharp criticism from Indian government and bankers.
The new economic risk score of 'Group 5' by S&P reflects that India has "high risk" in "economic resilience," "low risk" in "economic imbalances," and "high risk" in "credit risk in the economy," S&P said.
In the 'Group 6' score on India's economic imbalance was "intermediate risk" which has now been upgraded to "low risk".
S&P, however, noted that India's economic resilience is constrained by its weak economic structure. "We note that a large and persistent fiscal deficit limits the government's ability to stimulate growth through fiscal policies," it said.
It said the Indian banking system has level of "stable, core customer deposit", which limit dependence on external borrowing.
"We consider governance standards as generally adequate, though disclosures are somewhat inadequate," S&P Analyst Geeta Chugh and Deepali Seth said in the BICRA report.
Other countries in BICRA 'Group 5' are China, Portugal, Thailand and Turkey. A BICRA analysis covers rated and unrated financial institutions that take deposits, extend credit, or engage in both activities. It is rated on a scale of 1 to 10, ranging from the lowest-risk banking systems (Group 1) to the highest-risk (Group 10).
S&P, which had in September downgraded standalone ratings of State Bank of India (SBI), said high credit risks in the Indian banking sector reflects that the country has a weak payment culture and legal system that often result in low recoveries and delayed settlement of foreclosures.
"Nevertheless, we consider the lending and underwriting standards to be moderately conservative, and the sector concentrations as well as the currency risk exposures low," it said.
It further said, while the loan growth in India has been high, banks have a limited share of high-risk lending and a negligible presence of complex and innovative products.
"Banks have a track record of stable profits, but returns are lower than Indian corporates' though," it said.
S&P also classified Indian government as "highly supportive," which reflects "our expectation that the government is likely to provide timely financial support to the banking system, if needed."
Wednesday's Moody's downgrade of the banking sector could make overseas borrowings by banks costlier.
New Delhi: Differing with the downgrade accorded by Moody's, leading ratings agency Standard & Poor's has upgraded the Indian banking sector saying its domestic regulations are in line with international standards.