RETAIL BANKING | Staff Reporter, India

Indian government assails downgrade of banks

India vents its anger on the stunning downgrade of some of its larger banks by Fitch Ratings, Ltd.

Hitting out at global rating agencies for lowering the credit outlook of Indian banks, the government Thursday said these entities are fully capitalised and there is no cause to worry.

"We don't find any reason whatsoever that why Indian banks should be downgraded . . . The banks which have been downgraded, there is no reason for downgrade by rating agencies," said Department of Financial Services Secretary D K Mittal.

He emphasized that public sector banks are fully capitalized “. . . so there is no cause of worry.”

Mittal said the crisis of capital in the Indian banking system is highly overrated. The government is fully behind public sector banks, whatever rating agencies may say, he noted.

He said it is absolutely absurd for anybody to de-rate Indian institutions which are in better shape compared to their global counterparts.

The government said it will invest US$2.7 billion in public sector banks during the current fiscal year to boost their finances.

Fitch last week revised downward the credit rating outlook of 12 financial agencies: State Bank of India, ICICI bank, Punjab National Bank, Bank of Baroda and its international banking subsidiary in New Zealand known as BOBNZ, Canara Bank, IDBI Bank, Axis Bank, Export-Import Bank of India (Exim Bank), Housing and Urban Development Corporation and Infrastructure Development Finance Company.

Fitch's rating action comes within days of it lowering the credit outlook of the India from stable to negative. Analysts believe the cut in the rating outlook may raise the cost of overseas borrowings for these institutions.


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