Moody’s Upgrades the Outlook of 9 Banks from Negative to Stable

Just a couple of days after Moody’s upgraded India’s sovereign rating outlook from “Negative” to “Stable”, it has followed up with a more micro rollout of upgrades. It has upgraded the outlook for 18 Indian companies in all, which includes 9 banks and 9 non-banking companies. In all the cases, the outlook was upgraded from Negative to Stable.

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In the case of India’s sovereign rating, the overall rating had been maintained at Baa3, which is still the lowest investment grade and holds India at par with Russia and Italy. However, the outlook was raised from Negative to Stable and that adds an important buffer of safety to the India ratings as there is no immediate risk of dipping into speculative grade.

But, back to the banks that were upgraded by Moody’s. The justification for the upgrade in outlook of 9 banks was substantial improvement in asset quality and improved capital buffers. Despite appearing extremely vulnerable during the COVID-19 pandemic, Moody’s pointed out that the Indian banks had done very well and reforms had been supportive.

The list of 9 banks upgraded included 3 private sector banks and 6 PSU banks. The private banks with upgraded outlook were HDFC Bank, Axis Bank and ICICI Bank. The 6 PSU banks that saw their outlook upgraded included SBI, Bank of Baroda, PNB, Canara Bank, Union Bank and EXIM Bank. Out of the 6 PSU banks, EXIM Bank is the only non-listed bank.

Apart from the 9 banks, Moody’s also upgraded the outlook for 9 companies, consisting of 5 PSU companies and 4 private companies. The PSU companies included ONGC, Petronet LNG, Oil India, IOCL and HPCL. The private companies that saw their outlook upgraded included Reliance Industries, TCS, Infosys and Ultratech Cements.

Most of the upgraded companies are heavyweights whose fortunes are closely linked to the macro performance of the Indian economy. In its sovereign outlook upgrade, Moody’s had pointed out that the vicious cycle of the real economy and financial sector debilitating each other had been broken and the economy was on a growth path. That has worked in favour of most of the large corporates too.