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Wednesday, October 20, 2021

Risks receding: Moody’s upgrades India outlook from negative to stable

Of the three big rating agencies, Standard & Poor’s and now Moody’s, have a stable sovereign rating outlook. Fitch has kept it negative until now. Like Moody’s, the other two have also kept India at the lowest investment grade.

By: ENS Economic Bureau | New Delhi |
Updated: October 6, 2021 2:45:48 am
Moody's Investors Service had last year downgraded India's sovereign rating to 'Baa3' from 'Baa2', saying there will be challenges in implementation of policies to mitigate risks of a sustained period of low growth and deteriorating fiscal position. (File)

HIGHLIGHTING THAT INDIA’s downside risks from negative feedback between the real economy and the financial system are receding, ratings agency Moody’s Tuesday changed India’s sovereign rating outlook from ‘negative’ to ‘stable’, while affirming its foreign-currency and local-currency long-term issuer ratings at Baa3.

“With higher capital cushions and greater liquidity, banks and non-bank financial institutions pose much lesser risk to the sovereign than Moody’s previously anticipated. And while risks stemming from a high debt burden and weak debt affordability remain, Moody’s expects that the economic environment will allow for a gradual reduction of the general government fiscal deficit over the next few years, preventing further deterioration of the sovereign credit profile,” the credit rating agency said.

Of the three big rating agencies, Standard & Poor’s and now Moody’s, have a stable sovereign rating outlook. Fitch has kept it negative until now. Like Moody’s, the other two have also kept India at the lowest investment grade.

Last year, Moody’s downgraded India’s sovereign rating from ‘Baa2’ to ‘Baa3’, the lowest investment grade, stating there will be challenges in implementation of policies to mitigate risks of a sustained period of low growth and deteriorating fiscal position. The outlook on the rating was kept negative.

In the last six financial years, banks have recovered Rs 5.01 lakh crore of bad loans, enabling them to improve their financial metrics. The government has infused Rs 3.06 lakh crore in state-owned banks in five years between 2017-18 and 2021-22, and taken a series of reforms to strengthen banks, improve debt resolution, and recovery.

In September, the government approved extending a guarantee of Rs 30,600 crore to the National Asset Reconstruction Company Ltd (NARCL) to help clear the banking sector’s stressed assets of around Rs 2 lakh crore in a time-bound manner.

“Bank provisioning has allowed for the gradual write-off of legacy problem assets over the past few years. In addition, banks have strengthened their capital positions, pointing to a stronger outlook for credit growth to support the economy,” Moody’s said.

Following a deep contraction of 7.3 per cent in the fiscal year ending March 2021, India’s real GDP is expected to surpass 2019 levels this fiscal year, rebounding to a growth rate of 9.3 per cent, followed by 7.9 per cent in fiscal 2022, it said. Looking ahead, Moody’s expects real GDP growth to average around 6 per cent over the medium term, the report said.

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