Moody’s upgrades these PSUs’ and PSBs’ rating outlook from ‘negative’ to ‘stable’

New Delhi: Moody's Investors Service on Wednesday raised the rating outlook for ONGC, Petronet LNG Ltd, Oil India, Indian Oil Corporation, Hindustan Petroleum Corporation Ltd (HPCL), NTPC, NHAI, PGCIL (PowerGrid), and GAIL to 'stable' from 'negative'. Apart from these PSUs, the international rating agency has upgraded the rating outlook for a total of nine banks including some PSBs namely SBI, Axis Bank, Bank of Baroda, Canara Bank, Axis Bank, HDFC Bank, ICICI Bank, PNB, Union Bank and EXIM Bank.

Moody's affirmed the rating on privatisation-bound Bharat Petroleum Corporation (BPCL), but maintained the 'negative' outlook.

This follows the upgrade by the US-based rating agency in India's sovereign rating outlook to 'stable' from 'negative' on Tuesday. The agency had affirmed the sovereign rating at 'Baa3'. "Stabilization in asset quality and improved capital are the main drivers of this rating action," Moody's said.

It is pertinent to mention here that 'Baa3' is the lowest investment grade, just a notch above junk status.

"The decision to change the outlook to stable reflects Moody's view that the downside risks from negative feedback between the real economy and financial system are receding"- Moody's Investors Service

Following a deep contraction of 7.3 percent in fiscal 2020 (ended March 2021), Moody's expects India's real GDP to surpass 2019 levels this fiscal year (April 2021 to March 2022), rebounding to a growth rate of 9.3 percent, followed by 7.9 percent in the next financial year.

In a statement issued on Tuesday, Moody's said "the decision to change the outlook to stable reflects Moody's view that the downside risks from negative feedback between the real economy and financial system are receding." With higher capital cushions and greater liquidity, banks and non-bank financial institutions pose a much lesser risk to the sovereign than Moody's previously anticipated.

"And while risks stemming from a high debt burden and weak debt affordability remain, Moody's expects that the economic environment will allow for a gradual reduction of the general government fiscal deficit over the next few years, preventing further deterioration of the sovereign credit profile," it added.

It further said that solvency in the financial system has strengthened, improving credit conditions which Moody's expects to be sustained as policy settings normalise.

In addition, banks have strengthened their capital positions, pointing to a stronger outlook for credit growth to support the economy.

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