Fri, Feb 08, 2013 at 12:52
India Ratings:Term liability may ease banks funding strains
India Ratings says that the widening mismatches in banks’ funding will continue to put pressure on systemic liquidity and keep money market interest rates elevated.
India Ratings says that the widening mismatches in banks’ funding will continue to put pressure on systemic liquidity and keep money market interest rates elevated. The growing refinancing pressure is ultimately reflected in the current inverted-to-flat yield curve, which, together with sticky inflation, discourages long-term savings and may dilute transmission of monetary easing.
The cumulative negative funding gap in the one-year bucket for government banks increased to 17% of assets in March 2012 from 4% of assets in March 2002. This was partly due to an increase in short-term deposits; for example, deposits less than one-year have grown to 50% of deposits from 29% of total deposits for government banks during this period. The impact on systemic liquidity has been fairly dramatic the banking system has changed from being a net lender in the money market during the early 2000s to being a borrower now.
Raising long-term liability to reduce the funding gap can provide a sustained remedy, particularly as loan tenures may not reduce in the short to medium term. Apart from refinancing lines from nodal agencies and debt capital instruments, banks can also raise long-term senior bonds to the extent of their infrastructure funding. Large banks enjoy easy access to long-term investors such as insurance and pension funds and are well placed to tap this market. Senior bonds are rated at the same level as the bank’s Issuer Long-Term rating and are not notched like loss-absorbing hybrid capital.
India Ratings-rated Indian government and private banks are:
Allahabad Bank (‘IND AA’/Stable)
Andhra Bank (‘IND AA+’/Negative)
Axis Bank (‘IND AAA’/Stable)
Bank of Baroda (‘IND AAA’/Stable)
Canara Bank (‘IND AAA’/Stable)
Catholic Syrian Bank (‘IND BBB’/Stable)
City Union Bank (‘IND A’/Stable)
Dena Bank (‘IND AA-’/ Stable)
Dhanlaxmi Bank (‘IND BBB-’/RWN)
Federal Bank (‘IND AA-’/Stable)
HDFC Bank (‘IND AAA’/Stable)
IDBI Bank (‘IND AA+’/Stable)
Indian Bank (‘IND AA+’/Stable)
IndusInd Bank (‘IND AA-’/Stable)
ING Vysya Bank (‘IND AA-’/Stable)
Jammu and Kashmir Bank (‘IND AA’/Stable)
Kotak Mahindra Bank (‘IND AA+’/Stable)
Lakshmi Vilas Bank (‘IND BBB+’/Negative)
Punjab National Bank (‘IND AAA’/Stable)
South Indian Bank (‘IND A+’/Stable)
State Bank of India (‘IND AAA’/Stable)
UCO Bank (‘IND AA’/Stable)
Union Bank of India (‘IND AA+’/Stable)
Vijaya Bank (‘IND AA-’/ Stable)
http://www.moneycontrol.com/news/brokerage-recos-sector-report/india-ratingsterm-liability-may-ease-banks-funding-strains_820703.html
http://www.moneycontrol.com/news/brokerage-recos-sector-report/india-ratingsterm-liability-may-ease-banks-funding-strains_820703.html
India faces less risk of credit rating downgrade: S&P
(Reuters) - The possibility of India losing its investment-grade credit rating has receded somewhat as a result of economic reforms undertaken by the government since last September, an analyst with rating agency Standard & Poor's told Reuters on Thursday.
"It is still at least a one in a three chance that we could downgrade. But the likelihood of it is less than when we first indicated the negative outlook last year," Tan Kim Eng said in a telephone interview from Singapore.
His comments reflect a softening of the stand by the rating agency just a few weeks after it reiterated a warning in December about cutting India's rating to junk, citing a wide fiscal deficit and a heavy debt burden.
India has a BBB- rating from S&P, the lowest investment grade among the BRIC group of large emerging economies and one notch above "junk" status.
The threat of a rating downgrade along with electoral challenges posed by the worst economic slowdown in a decade has made Prime Minister Manmohan Singh's government rediscover an appetite for politically unpalatable but vital reforms.
It has opened the retail and aviation sectors to more foreign investment, hiked railway passenger fares, cut budget-busting fuel subsidies and slapped higher duties on gold imports that have widened its current account deficit.
"We had no indication that they would be rolled out. So, to some extent, it is a positive surprise," Tan said.
"Now, perhaps there are some indications that these reforms could bring India's structural growth back up again."
Economists polled by Reuters earlier this week forecast that the measures taken by New Delhi since late last year would be enough to stave off downgrade threats issued by both S&P and its rival Fitch last year.
A majority of economists polled, 14 of 23, said steps taken thus far were enough to convince the rating agencies, even though the economists expected the government to miss its fiscal deficit target for the year.
India's economic growth, which was close to hitting double-digits before the global financial crisis in 2008, has been stuck below 6 percent for the past three quarters. In the fiscal year ending March 2013, the economy is expected to expand by about 5.5 percent, the worst pace since 2002/03.
Growing economic pains are making it tougher for Prime Minister Singh to fund flagship welfare programmes ahead of a national election due by mid-2014.
To revive investor sentiment, Finance Minister P. Chidambaram has delayed until April 2016 controversial tax changes meant to combat evasion, after the new rules slowed capital inflows. He has put welfare, defence and road projects on the chopping block to hit a tough fiscal deficit target of 5.3 percent of GDP by March.
In an unusual move, he held roadshows in Asia and Europe this month to convince investors about India's commitment to economic reforms.
"The key thing is that investors have to be reassured about is that this (the reform push) is not a one-off thing, as in they are doing all this at this moment because things have turned negative and once things stabilise that's the end of all new efforts," Tan said.
"While we don't see an urgent need to downgrade the rating, we also are not yet comfortable enough to think that the rating outlook should revert to stable."
With national elections barely 15 months away, investors are worried the government could abandon its reform drive and unveil populist measures in the federal budget in February.
Chidambaram has promised to present a growth friendly budget on February But Tan said he was not expecting big-bang reforms in the budget.
"At the end of the day, our expectation from the next budget is that there will be no major structural reforms included. Because at the end of the day, this is an election year budget."
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