'Moody's rating downgrade not to affect fund-raising ability of affected banks'

Moody's downgraded the subordinate debt of 11 Indian banks

Global credit rating agency Moody’s downgrading of the debt ratings of 11 Indian banks will not adversely impact the banks’ ability to raise funds from international markets, top banking executives said.

The stock market has taken the downgrade in stride. S&P BSE Bankex, the sectoral index for banking stocks, was 7.5 per cent higher at 10,829 over the previous close.

Vijayalakshmi R Iyer, chairperson and managing director of Bank of India, said the fund-raising ability of banks is unaffected.

She, however, clarified her bank has no plans to raise money from international markets in the near future. The funds raised in the fourth quarter of 2012-13 are being deployed now, she added.

On Thursday, Moody’s said in a statement that the downgrade reflects the increasing international trend of imposing losses on holders of sub-debt securities as a pre-condition for distressed banks to receive government support.

“The global financial crisis has demonstrated that support can be provided selectively, with the costs being shared with subordinated creditors of a bank, without triggering any contagion, as it was previously feared,” said Gene Fang, vice-president, Moody's.

According to senior public sector executives, the downgrade is technical in nature and not an action following review of financial and credit parameters.

On Thursday, Moody’s downgraded the subordinated debt and junior subordinated debt ratings of 11 Indian banks - eight of them public sector banks and three are private sector ones.

The public sector banks affected by the ratings downgrade are: State Bank of India, Bank of India, IDBI Bank, Bank of Baroda, Canara Bank, Indian Overseas Bank, Syndicate Bank and Union Bank of India. The private sector banks are ICICI Bank, Axis Bank and HDFC Bank.