Tuesday, 24 February 2009

First Warning to BRICs: S&P May Cut India's Credit Ratings to Junk. Banks Already Suffer the Consequences of It

India’s credit rating might be cut by Standard and Poor’s to junk, citing the ''not sustainable´´ government pre-electoral spending plans to help fend off the impact of the global recession on the world's biggest democracy. S&P lowered its rating outlook on India, one of the BRICs, to negative from stable while affirming the country's BBB- long term credit rating, the lowest level in the investment grade. The government last week said it would pursue a budget deficit of 6 percent of gross domestic product, twice as much its target for the year. Tax cuts were also announced hours after the S&P announcement -- signaling the government is more interested in reviving the economy at any cost than anything else. Given the gravity of the global recession, governments will try to lift spending restrictions -- remember the case of Brazil that we have treated extensively in this blog, -- at a time investors begin monitoring fiscal numbers more closely.

Furthermore, S&P also revised the outlook on the counterparty credit ratings for ten Indian banks to negative from stable: Axis Bank; Bank of Baroda; Bank of India; Canara Bank; HDFC Bank Ltd.; ICICI Bank Ltd.; IDBI Bank Ltd.; Indian Overseas Bank; Indian Bank; State Bank of India; Syndicate Bank; Union Bank of India. We wish them good luck.

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