The government on Thursday lashed out at rating agencies for downgrading the country’s largest lender State Bank of India (SBI) and giving adverse comments about other Indian banks, calling it an “effort to destabilise our banking system”.
The department of financial services (DFS) hit back at Moody’s for lowering SBI’s rating when many weaker lenders globally enjoyed a higher rating and criticised Crisil’s report that pegged toxic debts in power sector at Rs 56,000 crore.
“The Crisil report is uncalled for at this stage. No one is raising red flag over what happened in Europe. This does not mean the banking sector is at risk,” DFS secretary D K Mittal said. “When you downgrade SBI you should also look at similarly-placed banks globally. They enjoy higher ratings than SBI.”
Interestingly, SBI chairman Pratip Chaudhuri had defended ratings agency, saying, “How could Italy have AAA rating when good Chinese banks don’t get it? But the question is you have to recognise that Italy has an open capital account system which China does not. So there would be some logic on their side. There is a case for putting up a more informed presentation to the rating agencies.”
The finance ministry’s grudge against Moody’s is that the rating agency did not warn SBI and put it on watch before the downgrade as is the global practice. The department is now talking to both Moody’s and Crisil to clear their doubts.
“If you want to reform a bank, first you warn them,” said Mittal. “You are not treating a small bank… We are in touch with Moody’s. We are meeting Crisil tomorrow. It should not happen again… There is no golden rule that ratings should not be upgraded again if parameters are improved.”
The reaction from the finance ministry has brought out the differences between the government and the SBI over the issue of capital infusion into the bank. SBI has asked for a capital support of Rs 15,000-25,000 crore for three years and is expecting the first tranche this year itself.
Mittal, however, said the downgrade was not because of the capital. Asked whether he felt all was well with SBI, he said, “I’m not saying that. In any case we must improve. I’m objecting to the method used by rating agencies.”
Another finance ministry official told Business Standard the decision of new SBI chairman on provisioning had led to a downgrade, and that instead of looking it as a reason to seek additional capital from the government, the bank should send out a clear message to its investors that its fundamentals remained strong.
Mittal said change of top management should not lead to a change in the books of bank. “We are advising banks to follow certain parameters. Auditors will also be accountable if accounts are wrongly done,” he added.
Yesterday, Finance minister Pranab Mukherjee reviewed 13 infrastructure projects to the tune of Rs 1 lakh crore with a bank exposure of Rs 60,000 crore. In the case of 10 projects, it was decided that clearance would come in two to three weeks. He will hold another review meeting next month.
Crisil on Wednesday had estimated that loans of Rs 56,000 crore to the power sector, which account for 12 per cent of the total advances to the sector, might come under risk if no meaningful reforms took place in the next 18 months.
An industry expert said there was “nothing new” in the report, and that with tariffs going up operational efficiency of power distribution companies will come gradually over the years.
Chaudhuri had, a few days after the downgrade, said there was no other alternative to rating agencies. “People do go to rating agencies by choice. The only criticism or the regret we can have with the rating agencies is why didn’t you see it in time. And why did you do a three-step downgrade all at the same time, did you not see at coming...” he had told a Business Standard round-table. “But broadly, while applying it to our bank, the rating downdrade from C- to D+ is a wakeup call. It is like doctor’s analysis that something is not possibly right in the system.”
