Leading bankers and players in the financial sector yesterday said the downgrade by Standard and Poor's would have a minimal impact on country. They felt the slump in global economy and the fact that Moody's had rated India lower than S&P had prompted the downgrade.
State Bank of India chairman M S Verma said he saw no immediate provocation for the downgrade. "I think the S&P action reflects its own fears on the economy rather than any real reasons. The rationale quoted by it, like high consolidated fiscal deficit and the prospect of high interest rates are not new," he said.
"Nothing has changed since the last review. If anything, political stability has improved. There is no justification for the downgrade," Verma said.
Verma said the downgrade was unlikely to lead to widening spreads for Indian paper abroad. "Though India's ratings have been non-investment grade, investors are still selective about Indian paper," Verma said, noting that spreads that had widened to 600 basis points immediately after the earlier downgrade, had improved to 350-400 basis points.
"I don't see the position worsening," he added.
Unit Trust of India (UTI) chairman P S Subramanyam said the downgrade at this point was of "no relevance as international investor confidence in India is still very high".
"Despite India's rating being below investment grade, Indian paper has been priced at levels which are available to double A and A-rated countries," Subramanyam said.
However, the chairman of Bank of Baroda said the downgrade meant that India's performance is being watched more carefully now. "The downgrade is an indication that the world is watching and an indication that it is time to act. It only confirms the concerns we have been voicing _ on a growing deficit, inflation, recession in industry, a lower than expected agricultural growth and a slowdown in exports," he said.
According to him, the downgrade is unlikely to have any immediate impact. "New issues that are being planned in the GDR market could take a beating. Foreign institutional investors (FIIs) have already been selling in anticipation of the downgrade and more offloading now is unlikely. The only consolation is that countries around us have also been downgraded to the same level or below. The next 3-6 months could be crucial," he said.
"The rating downgrade by S&P has to be seen in light of the developments taking place in other economies. World over, the outlook is negative. The change in rating gives an indication that the developments on the economic front are not positive. The rating warrants a change in policies," said Subodh Shah, executive director of Crisil.
According to P H Ravikumar, ICICI Bank executive vice-president (treasury and forex), "borrowings will get costlier by 25-50 basis points. "Borrowings which are currently at 275-325 bps over Libor may widen to 300-350 bps," he said.
