Tipping Point: What does a rating watch review mean?

What does a rating watch review mean?

Rating agencies like Moody's, Fitch, CRISIL and India Ratings have placed the scam-hit Punjab National Bank (PNB) under rating watch. This means that the rating agencies will re-examine their current rating of the bank. If they find that the financial impact of the fraudulent transactions will be considerable, they may downgrade the bank's rating. 

Do investors have reason to worry?

Yields in PNB's bonds have started hardening. A downgrade in ratings will worsen the situation. Both individual and institutional investors (like mutual funds and insurance companies) will suffer mark-to-market losses. Investors in mutual funds are somewhat protected (compared to direct investors) since funds tend to be diversified and exposure to a particular company's debt is usually limited. Fund managers would have swung into action by now and begun reducing their positions in the bank's papers.