November 10, 2011

S&P differs with Moody's, upgrades Indian banking sector

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.

"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.