A clutch of foreign lenders, with large exposure to Indian corporates, may be forced to sell their loans after Moody’s downgraded India’s sovereign ratings to the lowest investment grade on Monday.
According to at least two industry experts, foreign banks are already aware of the impending risks and have begun negotiations to sell their loan portfolios, including those given to some of the best-rated corporates in India.
“Most foreign banks follow the sovereign ceiling policy practised by all major rating agencies, which means that if there is a downward revision of sovereign rating, the credit rating of corporate debt issuers of the country will fall in tandem, irrespective of the issuer’s financial standing,” said the first person, requesting anonymity.
“In such situations, they typically reduce their exposure by exiting or part selling their loan portfolios.”
A senior banker of a large foreign bank said, requesting anonymity, that many lenders will be forced to sell their profitable assets if India’s risk increases.