13 Indian banks face downgrade by Moody's

Moody's Investors Service on Friday placed virtually all Indian commercial banks, including the country's largest lender State Bank of India, on review for possible downgrade in the light of its global review of systemic support indicators for banking systems.

The current global local currency ratings of 13 banks - State Bank of India, ICICI Bank, Punjab National Bank, Bank of Baroda, Bank of India, Canara Bank, HDFC Bank, IDBI Bank, Union Bank of India, Axis Bank, Central Bank of India, Syndicate Bank, and Oriental Bank of Commerce - have been placed on review for downgrade, according to a statement issued by Moody's.

''The review of the local currency deposit ratings will look at the extent to which India's ability to provide support to its banking system, if needed, is converging with the government's own debt capacity as a result of the ongoing global economic and credit crisis,'' the global credit rating agency said.

Moody's will refine its assessment of systemic support available from the government to capture the impact of the erosion of the local economy's underlying credit fundamentals and the reduced fiscal policy flexibility on the government's ability to support the banking sector.

Factors that Moody's will consider in its assessment of systemic support include the size of the banking system in relation to government resources, the level of stress in the banking system, the foreign currency obligations of the banking system relative to the government's own foreign exchange resources and changes to the government's political patterns.

According to the credit rating agency, the foreign currency subordinated (Lower Tier II), junior subordinated (Upper Tier 2) and perpetual hybrid Tier I ratings of SBI, ICICI Bank, Bank of Baroda, Bank of India, Canara Bank, HDFC Bank, Union Bank of India, and Axis Bank under their respective medium term note programmes were also placed on review for downgrade.

SBI's subordinated lower Tier II, junior subordinated upper Tier II, and perpetual hybrid Tier I bonds under its medium-term note programme have also been placed under review.

The rating agency will refine its assessment of systemic support from the Indian government in view of the country's underlying credit fundamentals. It will also consider the impact of the reduced fiscal policy flexibility on the government's ability to support the banking sector.