Moody's downgrade may affect Indian banks' overseas borrowing programmes

Moody's downgrade of the outlook for Indian banks may have an adverse impact on the overseas borrowing programmes of the banks, including top lender State Bank of India (SBI), which had planned to raise about $500 million.

Moody's Investors Service on Tuesday revised its outlook for India's banking system to negative from stable. It also warned that bank ratings may come under downward pressure.

Moody's said the downward revision has been necessitated by concerns that an increasingly challenging operating environment will adversely affect asset quality, capitalisation, and profitability of Indian banks.

The rating agency downgraded the outlook for these banks after the non-performing assets of state-owned banks increased to 2.31 per cent of their assets as of end-March 2011, from 2.27 per cent in the year-ago period.

As at the end of September quarter, SBI, the country's largest lender, had gross NPAs of 4.19 per cent, up from 3.38 per cent in the year-ago period.

For the rating, Moody's has analysed 15 top commercial banks in India, which together account for about 66 per cent of total banking assets in the country. A majority of these are state-run banks, accounting for around 75 per cent of the market in terms of assets.