S&P ups Indian banks' rating by a notch

A day after ratings agency Moody's lowered the outlook on the Indian banking sector (See: Moody's downgrade may affect Indian banks' overseas borrowing programmes), rival agency Standard & Poor's on Thursday moved it a notch higher in the Banking Industry Country Risk Assessment (BICRA), saying local regulations are largely in line with global standards.

However, S&P pointed out that the improvement had little to do with improved performance parameters. Rather, it was the result of a change in methodology for BICRA, a tool to evaluate and compare global banking systems.

"In our view, banking regulations in India are in line with international standards and the regulator has a moderately successful track record,'' S&P analysts Geeta Chugh and Deepali Seth said in the assessment report.

''The Reserve Bank of India continually monitors the macroeconomic environment. The RBI also has introduced countercyclical measures and differentiated risk weights to moderate banks' risk appetite. We consider governance standards as generally adequate, though disclosures are somewhat inadequate," they said in a statement while upgrading the risk profile from Group 6 to Group 5.

The industry risk score of 5 reflects high risk assessments on the institutional framework and competitive dynamics and low risk regarding system-wide funding, the statement added. At the present level, the Indian banking sector is at par with markets such as China, Portugal, Thailand and Turkey.

S&P's action, however, is technically not a rating upgrade. It has a stable outlook on all the 12 Indian banks it has rated. ''This is just a change in criteria and not a rating revision. The revision follows our assessment of India after having published our updated BICRA methodology,'' an S&P spokeswoman said. ''The criteria were changed to bring about greater transparency and global compatibility.''