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Moody’s thumbs up to Indian banks

New Delhi, Feb. 6: Global rating agency Moody’s Investors Services has upgraded a clutch of banks’ long-term foreign currency deposit rating to ‘stable’ from ‘negative’, citing the recent upward revision of India’s rating.

The agency also upgraded the ratings for the $100-million global bond issue of Power Finance Corp and Industrial Development Bank of India’s $150-million Eurobond issue to Baa3 from Ba1 along with the foreign currency issuer rating of IFCI Ltd.

The changes reflect Moody’s growing optimism about the Indian economy, which rose at a cracking pace of 8.4 per cent in the July-September quarter along with soaring portfolio investments, expatriate remittances and trade flows.

“These ratings are all closely linked to India’s sovereign ratings, given the government ownership and the importance of these financial institutions,” the agency said in a statement.

The ratings of government-run Bank of Baroda, Bank of India, Canara Bank, Oriental Bank of Commerce, Punjab National Bank, State Bank of India and Union Bank of India have been revised along with private bank ICICI Bank Ltd.

In January, the agency had raised India’s foreign currency rating to Baa3 from Ba1, which analysts say will effectively widen the country’s investor base and reduce overseas borrowing costs for domestic companies.

A top banker with state-run Oriental Bank of Commerce said the revision would help banks deal with asset liability mismatch by raising long-term deposits.

“Our strategy is short-term banking in an era of lower interest rates — lend short and borrow short — which minimises risk as the exposure will be for a short-term period,” he said.

“The revision was necessary as all these ratings are linked with sovereign ratings or capped with foreign rating,” said Saumitra Chaudhuri, chief economic adviser of rating firm Icra.

However, analysts said the poor state of the country’s public finances — a fiscal deficit of 10 per cent of gross domestic product (GDP) and a high debt-GDP ratio — are a source of concern.

“The revision would help the banks in raising loans through the external commercial borrowings (ECB) route,” explained Chaudhuri.

“The government is preparing the ground for tomorrow...the excess liquidity in the system is due to an absence of demand. Liquidity would dry up once demand picks up. Keeping this in mind the government has partially relaxed the ECB norms,” said a banker.

Under the revised ECB policy, Indian companies have been allowed to raise five-year dollar loans up to $500 million without taking government permission.

Indian companies have raised $1.1 billion so far this fiscal, compared with $1.6 billion in 2002-03 as cheaper foreign loans and a rising rupee helped cut borrowing costs at home.

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