Credit rating agency Moody’s has placed on watch state-owned giant Life Insurance Corporation (LIC) and three of India’s biggest private sector banks — ICICI Bank, HDFC Bank and Axis Bank —for a possible downgrade, with the review for the three banks expected to be completed within three months.
Moody's action follows closely on the heels of another credit rating agency, Standard & Poor’s (S&P), downgrade on the outlook of 11 Indian financial institutions last week to negative from stable, following a similar outlook downgrade of India’s sovereign credit rating.Experts believe that depositors and investors need not to worry much on the issue.
“Depositors money will not be impacted by Moody’s announcement as their financial health is in good shape,” said Dinesh Shukla, banking analyst at brokerage firm Sharekhan. “Latest quarterly results of these three banks show that they are in growth trajectory. We do not see any major downside for these banks in near future,” he said, adding that he has a buy call on ICICI Bank and Axis Bank and hold on HDFC Bank. All three banks under review by Moody’s were also in the list of 11 financial institutions whose credit ratings outlook was downgraded to negative by S&P last week.
The immediate trigger for placing LIC on the review list for a possible downgrade is the bailout act performed by the insurer in the sale of the government’s 5% stake in the oil company, ONGC.
“LIC has been increasing its exposure to public sector banks through equity investment, in addition to the purchase of shares in ONGC, which is 69.14% owned by the Indian government in March 2012,” Moody’s said.