Moody’s 'threatens' LIC, ICICI, HDFC

Close on the heels of Standard & Poor's move to cut India's rating outlook to negative, another global rating agency, Moody's Investors Service, is reviewing its rating of four Indian financial institutions — ICICI Bank, HDFC Bank, Axis Bank and LIC — for a possible downgrade within three months. The standalone credit assessments of these institutions are currently positioned one notch above India's sovereign debt rating.

The announcement reflects Moody's revised assessment of the linkage between the credit profiles of sovereigns and financial institutions globally. "Consistent with this guidance, Moody's expects to position the standalone credit assessments of most banks globally at (or below) the rating of the sovereign where the bank is domiciled," the agency said. "Moody's expects to conclude the reviews within approximately three months".

The review comes after Standard and Poor's cut India's credit rating outlook on April 25 to negative from stable, citing hefty fiscal and current account deficits and political paralysis. S&P also lowered rating outlook of 11 financial institutions, including the three private banks which are under Moody's watch now.

According to Moody's, all the three banks have 'baa2' foreign currency long-term ratings, which reflects medium-grade investment rating with some speculative elements and moderate credit risk.

"Moody's has placed the insurance financial strength rating of Life Insurance Corporation (Baa2/stable) under review for possible downgrade," it said.

Moody's said that the review for downgrade reflects LIC's direct exposure to the Indian sovereign risk in terms of its investment portfolio and business profile. As on December 31, 2011, government securities and government guaranteed bonds represented 54 per cent (Rs 6 lakh crore or about $ 111 billion) of the insurer's total cash and invested assets and 764 per cent of adjusted shareholders' equity, the statement said.

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