redraft ppt on credit ratings
TRANSCRIPT
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....
8/3/2019 Redraft Ppt on Credit Ratings
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DOWNGRADING OF CREDIT
RATINGS OF INDIAN BANKS (Moody’s)
Members
Ringku Reang
Varun Mishra
Kalyani Malli
R.L Parsoya
P.K Chhetri
Abhinav Johri
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Scope
• Introduction
• Moody’s ratings on Indian banks
• Government response
• Effects on Banking system
• Effects on Indian Economy as a whole
•
Precautionary measures
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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
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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
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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
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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
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Who & What.....
• Performs international financial research
• Analysis on commercial and government
entities
• Ranks the credit-worthiness of borrowers
using a standardized ratings scale
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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
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Moody’ ratings contd....
• economic stability, integrity and corruption,
legal system
• Regulatory environment
• Risk Management
• Franchise value
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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’
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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
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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
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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
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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
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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
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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%
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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.
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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
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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
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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
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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
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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
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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.
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Precautionary measures
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Conclusion