S&P threatens rating downgrade, wants more government action

"A downgrade is likely if the country's economic growth prospects dim, its external position deteriorates, its political climate worsens, or fiscal reforms slow," the agency said in a report.

S&P, however, said that it could improve rating outlook from negative to positive if "the government implements initiatives to reduce fiscal deficit, improves its investment climate, and increases growth prospects".

The rating agency in April had changed the rating outlook of India from stable to negative, reflecting the possibility of a downgrade.

The country's present rating is BBB-(Negative), the lowest investment grade rating, and a downgrade would result in India's rating slipping to junk status, raising the cost of overseas borrowings by domestic corporates.

"The weaker global economic outlook and domestic policy instability contributed to deteriorating growth prospects and investor confidence in the country. In our view, there is a significant chance that this trend could eventually affect political, economic, fiscal or external factors to lower the credit rating on India", S&P report said.

Meanwhile, the agency lowered ratings of two state-owned banks State Bank of India and Union Bank of India (UBI) by a notch.

"We revised the stand-alone credit profile (SACP) of SBI to 'bbb-' from 'bbb' and that of UBI to 'bb+' from 'bbb-' based on our anticipation of the banks' weak asset quality performance," it said. MORE