Moody's cuts ratings of LIC, Axis Bank, HDFC Bank and ICICI Bank

The recent investment by state-owned Life Insurance Corp, India's biggest insurer, in the issue of Oil & Natural Gas Corp has cost it a drop in its rating by global credit rating agency Moody's Investor Services.

Apart from the ONGC investment, Moody's has also cited LIC's recent investments in several state-owned banks for cutting its rating from Baa3 to Baa2 - but with a stable outlook.

Moody's has also revised downwards the standalone and hybrid debt ratings of the top three private banks in India - Axis Bank, HDFC Bank & ICICI Bank. Their sovereign ratings level has dropped to D+ from C-. The lenders' hybrid ratings were also lowered a notch to Baa2 from Baa3.

On LIC, Moody's analyst Stella Ng said its ''Increased investment in ONGC and increasing investment in public sector banks are credit-negative," adding that its overexposure to the state-run banks is also a concern.

Ng, however, added that the agency "sees no change to LIC's rating after sovereign rating action and therefore retain our stable outlook for the company."

The downgrade relates to LIC's foreign currency insurance financial strength rating and concludes the review for possible downgrade initiated on 30 April 2012.

The insurer had rescued the government's sale of a 5 per cent stake in ONGC earlier this year, buying over 90 per cent of the shares on offer at the last minute to avert total failure of the offer – widely believed to be under government pressure. Since then ONGC has been trading low, eroding LIC's investment.