Moody's to review sub-debt of 11 Indian banks for downgrade

Change in assumption about systemic support triggers review

Rating agency Moody’s has placed the subordinated debt (sub-debt) of 11 Indian banks, including the State Bank of India and ICICI Bank, on review for a downgrade.

Moody’s said in a statement the action followed change in its assumptions about the systemic support to sub-debt holders. This review was not driven by a change of view on the intrinsic financial strength of the banks and related debt securities. Other Indian banks under review include Axis Bank, HDFC Bank, Union Bank of India, Syndicate Bank, Canara Bank, Indian Overseas Bank, Bank of India, Bank of Baroda and IDBI Bank.

The rating agency has also put 41 banking groups across the Asia-Pacific, including India, for review for downgrade. These groups currently benefit from a rating uplift due to systemic support. The revised methodology now assumes that no support would be extended to sub-debt holders, except where particular circumstances justify, the rating agency said.

Previously, it had assumed sub-debt would indirectly benefit from the support provided to banks to protect deposits and senior debt. It expects to conclude the review within the next three months and later communicate conclusions. The review was strictly driven by considerations surrounding the heightened uncertainty surrounding regulatory and government behaviour in times of banking sector stress.

Moody’s said it would like to understand whether and how support is likely to be provided in future crises, for certain classes of debt.

It added that various factors point towards a reduced likelihood of support, leading to conclude that the probability of support for sub-debt holders in Asia has likely diminished. This necessitates a formal review of Asian bank sub-debt, Moody’s said.

The affected banking groups are from Australia (8), Hong Kong (5), India (11), Korea (8), Philippines (2), Singapore (3), Taiwan (1) and Thailand (3).