The Telegraph
Tuesday , May 20 , 2014
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Thumbs-up from Moody’s

Mumbai, May 19: Global credit rating agency Moody’s Investors Service today said the decisive victory of the BJP-led NDA alliance in the general elections was credit positive for India as a stable central government could address the country’s economic challenges.

Moody’s had assigned a Baa3 on India, which is the lowest investment grade and signifies moderate credit risk. Moody’s has a stable outlook on the country.

“Moody’s believes the new government’s strong mandate increases the possibility of a stable central government that will pursue a shared economic agenda to address India’s macroeconomic challenges,” a report from the agency said.

While the victory for the alliance is credit positive for both India’s sovereign profile and the corporate sector, the effects on banks will be limited at present.

“Moody’s also considers that the completion of the elections will allow stalled policies relating to the corporate and infrastructure sectors to resume, a credit positive for the country’s corporates,” Moody’s vice-president and senior credit officer Vikas Halan said.

According to Halan, a closer co-ordination between the central and state governments on clearances for mega projects and land use, which finds a mention in the BJP’s manifesto, would address investment delays faced by the country.

According to the rating agency, the new government could also raise natural gas prices that would benefit upstream oil and gas companies.

Impact on lenders

On the recommendations by the P. J. Nayak committee on improving governance in public sector banks, the rating agency said the measures, if implemented, could be credit positive for the lenders.

The committee had suggested that the government cut its holding in public sector banks to below 50 per cent. It also recommended that the Centre transfer its holdings in nationalised banks to a bank investment company.

The rating agency said governance characterised by poor board supervision and excessive government interference is a structural credit weakness of public sector banks.

Government interference means policy objectives, rather than commercial factors, will dictate some business decisions at these banks, it observed.

Further, the quality of the top management at these banks has been hampered by a non-transparent appointment process, relatively short tenures and a lack of accountability.

“The effects of weak governance have become apparent as the economy has weakened, with public sector banks’ performance lagging that of private banks,” Moody’s said.