Rating agency Moody's has placed 13 Indian banks, including State Bank of India, ICICI Bank and Punjab National Bank, on watch for possible downgrade under a global review of systemic support available for the banking sector.
Others banks under review are Bank of Baroda, Bank of India, Canara Bank, HDFC Bank, IDBI Bank, Union Bank of India, Axis Bank, Central Bank of India and Oriental Bank of Commerce (OBC).
The review will take into account India's ability to provide support to its banking system in the light of the government's own capacity for carrying debt due to the ongoing global economic and credit crisis.
The rating agency will refine its assessment of systemic support from the Indian government in view of the country's underlying credit fundamentals. It will also consider the impact of the reduced fiscal policy flexibility on the government's ability to support the banking sector.
Some of the factors that the rating agency will take into account to assess systemic support include the size of the banking system in relation to government resources and the level of stress in the banking system. The foreign currency obligations of the banking system relative to the government's own foreign exchange resources and changes in the government's political pattern would also be factored in, Moody's said.
The agency previously used the local currency deposit ceiling (LCDC) as the main input for making assessment of the ability of a government to support its banks.
Getting government support may be apt in many circumstances for providing liquidity to a few institutions in the short term. But, a central bank's capacity to support financial institutions in case of the crisis becoming systemic might be overestimated, said the agency.
SBI's subordinated lower Tier II, junior subordinated upper Tier II, and perpetual hybrid Tier I bonds under its medium-term note programme have also been placed under review.
