India's top 10 banks, including the SBI, ICICI Bank and HDFC Bank today suffered a collateral damage following the Standard and Poor's lowering the country's sovereign rating outlook.
The global agency downgraded the rating outlook of these banks, stating the move reflects "the outlook on the sovereign credit rating on India".
While it is only the outlook which has been lowered at the moment, the S&P warned that the banks' ratings can also be revised downward if similar steps are taken for sovereign rating.
Other lenders included in the latest rating outlook revision are, Axis Bank, Bank of India, IDBI Bank, Indian Overseas Bank, Indian Bank, Syndicate Bank and Union Bank of India.
Besides, the Infrastructure Development Finance Company Ltd (IDFC) is also impacted by the rating action.
Experts feel that the S&P's move will not significantly impact the cost of resource mobilisation of the Indian banks since they raise bulk of the money from the domestic sources.
Justifying the move, it said, "S&P does not rate Indian banks above the rating on the sovereign because of the direct and indirect influence that the sovereign in distress would have on banks' operations including ability to service foreign currency obligations."
It said the banks get influenced if the country's sovereign rating itself is affected because they are subject to government policy and regulation and they invest a significant portion of their funds in state securities. The banks are also majority owned by the government.
"We could revise the outlook to stable if we take a similar action on the sovereign rating," it said.
However, the S&P risk assessment on the country's banking industry remains unchanged.