An internal study made by the credit rating company of its actions in the past two decades has found there has been only one case where a country’s negative outlook has been reversed. “We have raised only one sovereign rating (since 1989) with a negative outlook, and we have lowered 162 out of 282 sovereign ratings with negative outlooks”, its Sovereign Credit Weathervane, Year-End 2012 Update notes.
On the S&P grading scale, India stands at the lowest investment grade with a negative outlook for its economy. The government has hotly disputed that position and has taken a large number of steps to reverse that perception including a plan to reduce a debilitating fiscal subsidy. The S&P report however shows the chances of India getting an upgrade soon is dim. The Update notes that “outlooks and Credit Watch listings on sovereign ratings have been useful indicators of future rating actions”.
In another report, S&P has said Asia-Pacific Banks have better capital adequacy than European or US banks. It says the former banks are poised to take the global lead in implementing Basel III in 2013. S&P credit analyst Naoko Nemoto said, “However we expect banks in high-growth systems such as India and China to face challenges in maintaining or raising capital ratios to keep pace with growth in risk assets. Based on certain assumptions, we estimate that the total capital shortfall of major banks in both countries could reach about $100 billion in 2019”. The Basel III capital reforms encourage banks to strengthen capitalisation, which is a positive rating factor, as it protects them from risks associated with excess credit growth and asset inflation.
Meanwhile, Moody’s on Monday said it has a “negative” outlook on India’s banking system due to concerns over asset quality and the high interest rates. “In India, impaired loans are yet to peak among public sector banks,” Moody’s said in its Asia-Pacific Banking Outlook. The agency further said though the government is “likely to remain supportive”, options for the Reserve Bank to slash lending rates are limited due to high inflation and the “modest fiscal capacity”. However, the report said interest rates are likely to fall during 2013 but still they will remain higher than the rest of Asia.