Redraft Ppt on Credit Ratings

8/3/2019 Redraft Ppt on Credit Ratings

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The ‘D’ word

DOWNGRADE.....

DOWNGRADE....

DOWNGRADE.......LIKE A FLU.........

SPREADING WILDFIRE.....

US to EUROPE....EUROPE TO ASIA....



DOWNGRADING OF CREDIT

RATINGS OF INDIAN BANKS (Moody’s)

Members

Ringku Reang

Varun Mishra

Kalyani Malli

R.L Parsoya

P.K Chhetri

Abhinav Johri



Scope

• Introduction

• Moody’s ratings on Indian banks

• Government response

• Effects on Banking system

• Effects on Indian Economy as a whole

•

Precautionary measures



What is credit rating

•Assessment of a borrower’s credit quality

•Perform function of credit risk evaluation

•Well informed opinion made available tothe public

•credit report information typically sourcedfrom credit bureaus.

•Not a recommendation to buy, hold or sell



Benefits of Credit Rating

Country level

- able to access funds from outside their country

– Attract other forms of investments to a country like FDIs

– Good credibility of indian banks and economy as a whole

Investors/ borrowers

- helps in investment decisions

- benefits of ratings reviews

- assurance of safety

- Easy understandability of investment proposal

- Choice of instruments

- Saves in investor’s time and effort



Company

- improves corporate image

-lowers cost of borrowings

- wider audience for borrowing

- good for non-popular companies

- Acts as a marketing tool

- Helps in growth and expansion

Creation of stable, transparent and integrated

financial markets



Moody’s Investors service: Who & What

• Originator - John Moody, Financial Analyst and Investor

• Parent company - Moody's Corporation, 1909 (NYSE: MCO)

• Moody’s Investors service & Moody’s Analytics

• Incorporation- July 1, 1914.

• revenue of Moody’s investors service alone was $2 billion in 2010, employs

approximately 4,700 people worldwide and maintains a presence in 27 countries



Who & What.....

• Performs international financial research

• Analysis on commercial and government

entities

• Ranks the credit-worthiness of borrowers

using a standardized ratings scale



Moody’s ratings of banks

Types of ratings

• Bank deposit ratings

• Bank financial strength ratings (BFSR)

Determining factors

• financial fundamentals (CAMEL)

– capital adequacy, profitability, asset quality, liquidity,

efficiency

• operating environment



Moody’ ratings contd....

• economic stability, integrity and corruption,

legal system

• Regulatory environment

• Risk Management

• Franchise value



Negative From stable

• 15 banks downgraded to ‘negative’ from

‘stable’

• BFSR is D+ from C-

• Stable- ‘sustainable profitability and limited

volatility’

• Negative- ‘volatility and uncertain conditions’



Downgraded banks

•State Bank of India

• Bank of Baroda

• Bank of India

• ICICI bank

• HDFC bank

• Axis bank

• Canara bank

• Central Bank of India

• Yes bank

• Syndicate bank

• Indian overseas bank

• IDBI bank

• Union Bank of India



Factors leading to downgrade

• Challenging operating environment having

adverse impact on

- asset quality, capitalisation, profitability

• Economic momentum slow down due to high

inflation, monetary tightening and rising

interest rates

• Global economic slowdown



Factors contd.....

• NPAs increased in 2nd qtr of 2011

-SBI 6000 cr

-Union Bank of India 1400 cr- Bank of India 1000 cr

- Canara, OBC, HDFC, ICICI etc.

•Liberalisation of savings deposit rates



Status of CAR and NPAs (data source- prowess n DRT’s site)

Name of banks Tier1 C AR

(March ’10 )

Tier1 CAR

(March ‘11)

Net NPA

(March ’10 incr)

Net NPA

(March ’11 incr)

SBI 8.46 7.6 *june ‘11 10870 12347

CBI 6.83 6.31 727 847

BOB 9.2 9.99 602 790

UBI 12.85 8.69 965 1803

Indian

Overseas Bank

8.67 8.16 1995 1328

ICICI **** 13.17 3841 2407IDBI **** 8.03 1406 1677



Government’s response

Pranab Mukherjee (FM)

• Indian banks are well capitalised

• Banks are on solid ground and have sound capital structure

• calculations of the NPAs was not correct

• Indian banking system is well regulated and international

community need not be worried about its health



Montek Singh Ahluwalia (Chairman, PCI)

• 2011 is a bad year for the world economy as a whole

• explosion of the Eurozone crisis has led to the disruption

of growth rate of almost all countries.

D. K Mittal (Secretary, FS)

• Indian banks are stronger than its world counterparts

• banks are fully capitalised

• Indian banks’ NPAs are better than other banks’

• Economy is growing at 8%



Govt response contd...

Subir Gokarn (Dy.Governor, RBI)

• No systemic weakness in Indian banks

•

Currency volatility is happening globally

Indian Financial Stability Report (June 2011)-

domestic financial system remained stabledespite fragilities in the global economy.



Financials of the major banks in terms of total

assets

Banks

• SBI

• ICICI bank

• PNB

• BOB

• BOI

• CANARA

• HDFC bank

• IDBI bank

INR(in bn)

9644

3793

2469

2274

2265

2175

1833

1724



Financial contd....

Banks

• Union Bank of India

• Axis Bank

• Central Bank of India

• Syndicate bank

• Oriental Bank of

Commerce

INR (IN BN

1610

1477

1338

1303

1126



Effects on the banking system

• BSE banking index down to 2.6 %.

• Rupee goes down compared to USD

• NPAs of banks to shoot up

• Banks’ external borrowings will go up • High cost of funds

• Borrowings from banks would slow down

•Banks loans growth to fall down

• Squeezing margins in terms of profitability



Effects contd.....

• Reputation of the banks goes down

• Financial inclusion will slow down

• Restructuring of NPLs will increase

• DRTs workload will increase

• Consolidation of banks will slow down

• Cash affluence down

• Securitisation will be affected

• Basel norms non-achievable



Effects on Indian economy

• Like an American bomb dropped in Libya

• Investors running out of patience

• Global investors avoid India

•

Liquidity crunch• Decrease Purchasing power

• Slow growth rate

• Fall in bank loan growth



Credibility of rating agencies

• Not a full proof- doubt on ratings

• Flexible systems/ procedures of the agencies

•

Harassing tools for extraction of profit• Creates panic ‘loom rush’ unnecessarily

• Further Corrections & contradiction

• Intentional destabilization of economies• Just a creation of HEADLINES.



Precautionary measures



Conclusion

Redraft Ppt on Credit Ratings

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