India Seeks Rating Upgrade From Moody’s; Rating Agency Highlights Bad Loan Concerns
India seeks ratings upgrade; Moody’s concerned about bad loans
The Indian government’s pitch for a upgrade in the country’s sovereign rating continues to hit a wall. Rating agency Moody’s Investor Services has raised concerns about the build up of bad loans on the books of Indian banks and the inadequate availability of capital to strengthen bank balancesheets.
Moody’s Investor Services in a meeting with finance ministry officials has suggested that the government provide more recapitalisation funds for public sector banks, a senior finance ministry official said. Government officials met with Moody’s representatives a day after the rating agency released an assessment of the Indian economy and pitched for an upgrade in the country’s sovereign rating.
The US-based rating agency has a ‘Baa3’ rating with a positive outlook on India
Gross non-performing assets soared to over Rs 6 lakh crore as of June 2016 after the Reserve Bank of India conducted an asset quality review and asked banks to classify stressed assets appropriately. A large chunk of the bad loans are on the books of government owned banks.
Moody’s officials raised concerns over India’s bad loan situation and said it is a hindrance to a sovereign ratings upgrade, said the official quoted above.
In a report released on Tuesday, the agency had suggested that it would maintain its current rating for India despite reforms such as the Goods and Services Tax being rolled out.
“...the credit implications of India’s (Baa3 positive) reforms will materialise in the medium term, fostering a more stable macroeconomic environment conducive to fiscal consolidation,” the rating agency said.
Moody’s expects the near term to remain challenging on a number of fronts including government finances, private investments and stress in the banking sector.
As part of their pitch, government representatives told Moody’s that the country’s gross domestic product would grow by 8 percent this fiscal and added that India is poised to grow at 8-10% in the coming years, the official said.
During the April-June quarter, India’s GDP grew by 7.1%, which happened to be the slowest pace in six quarters.