India's Baa3 rating and stable outlook reflects robust domestic savings rate, relatively long average maturity of government debt, a low percentage of government debt owed to non-residents
Moody's investor services said that India's Baa3 rating and stable outlook reflect a robust domestic savings rate, relatively long average maturity of government debt (nine years) and a low percentage (5.4%) of government debt owed to non-residents.This rating comes, despite of weakness in the Indian banking sector owing to poor asset quality in public-sector banks, adds to the pressure on the government's finances. The Indian government owns much of the country's banking sector and makes an annual provision in the budget to cover the banks' losses in lending to certain preferred sectors, such as infrastructure and power generation.
The Moody's in the recent report on Asia Pacific credit outlook stated that The overall credit quality of sovereigns, corporations and financial institutions in Asia Pacific is stable. We believe the region can withstand increased headwinds that are likely in the next 12 months, including slower economic growth in China, the US Federal Reserve scaling back its bond-buying program and the potential bursting of asset bubbles. Although evidence is growing that Japan's efforts to revitalize its economy are gaining traction, sustained growth is not assured.
We have stable outlooks on nine of the 15 Asian banking systems and a positive outlook on one. The outlooks are negative for the banking systems in Hong Kong, Singapore, India, Mongolia and Vietnam. Nonetheless, banks in Hong Kong and Singapore are among the highest rated in the world; their negative outlooks reflect our belief that the credit cycles in these jurisdictions have peaked. Moreover, the Hong Kong and Singapore banking systems remain strongly capitalized and highly liquid, features they share with most other systems in Asia, added the report.
Raising concern over India's large current account deficit, Moody's said India's relatively large current-account deficit is primarily related to funding oil and gold imports. Because the government is unlikely to scale back the subsidies it pays to oil consumers in the near term, any increase in oil prices, whether due to global market conditions or further depreciation of the rupee against the dollar, would increase pressure on the government's budget.
Moody's said that Asian economies should be able to absorb the volatility associated with QE tapering. We do not expect balance-of-payments crises when the US Federal Reserve scales back its quantitative easing (QE) program, even in those countries under greatest recent exchange rate pressure. Sovereigns have built up large reserve buffers and used flexible exchange rates to absorb shocks. Most banking systems are funded with deposits and have little offshore wholesale funding exposure, with the exceptions of Korea, Australia and New Zealand. Moreover, the default rate for Asia Pacific (ex Japan) high-yield corporates will remain low in 2013. Consequently, we do not expect widespread liquidity problems.
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