InvestorQ : What is the main reason for Moody’s downgrading the Indian banks from Stable to Negative and what are the main reasons cited?
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What is the main reason for Moody’s downgrading the Indian banks from Stable to Negative and what are the main reasons cited?

Answer
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5 months ago


Global rating agency, Moody’s, reduced the outlook for Indian banks from Stable to Negative. Financials account for 41% of the Nifty and hence it matters a lot. Broadly, the downgrade was driven by 2 factors. First was the aftermath of the COVID-19 which had created a weak operating environment. The lockdown has led to a virtual halt in economic activity. EMI moratorium is likely to create cash flow problems for banks. Credit is expected to dry up and directly impact GDP growth. Impact will also be felt on consumption. The second big risk highlighted is the risk of rising NPAs all over again. Moody’s expects higher risk of defaults in SME loans and retail loans. Most private banks have 30-40% exposure to realty and consumer lending. That could come under pressure. EMI moratorium could also impair assets in the future.