S&P LOWERS OUTLOOK ON STATE BANK OF INDIA AND ICICI BANK

Standard & Poor's has lowered the outlook on 11 financial institutions, including State Bank of India and ICICI Bank, to negative from stable. It, however, said a rating downgrade is unlikely since the individual finances of the institutions are unlikely to deteriorate sharply.

The revision follows a similar move in terms of the sovereign as financial institutions from India cannot be viewed above the sovereign since policy changes have substantial impact on them.

"The negative outlooks on the 11 financial institutions reflect the outlook on the sovereign credit rating on India," S&P said in a statement. "We could lower the ratings on these financial institutions if we lower the sovereign rating or if the stand-alone credit profiles of these financial institutions deteriorate sharply. We believe that such deterioration is unlikely in most cases. We could revise the outlook to stable if we take a similar action on the sovereign rating."

Indian banking sector's health has been deteriorating in the last few quarters since borrowers are either postponing repayments or defaulting as tight business conditions hamper growth.

Policy obstacles have halted many projects. Crisil, the Indian unit of S&P, forecasts that restructured loans may touch 2 lakh crore this fiscal, from an estimated 1.5 lakh crore in fiscal 2012.

Telecom tower group GTL Infrastructure; microfinance company BASIX; Deccan Cargo and Express Logistic, founded by Captain Gopinath; and Bharati Shipyard are among companies whose loans were restructured last year, document from the CDR Cell shows. Other companies like Hotel Leela Ventures, builder HCC and Lavasa, a hill city, await approvals from banks to restructure their loans.

But the rating company's decision is unlikely to have any significant impact on the banks' operations since most of them do not have much overseas borrowings, or have access to huge domestic funds. After the 2008 credit crisis, the impact of rating companies' report on corporate decisions has diminished substantially.

"It is just an outlook change and we need to wait for a month or two to see if this has any material impact," said Brijesh Koshal, managing director - investment banking, Daiwa Capital Markets. "When such developments occur, corporates also adopt a wait-and-watch approach and evaluate the market before they take a decision."

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/sp-lowers-outlook-on-state-bank-of-india-and-icici-bank/articleshow/12873887.cms