The magnitude of India's fiscal deficit remains the "biggest area of concern," and steps that are taken to "either exacerbate it or address it" could influence the country's sovereign ratings, says Suzanne Smith, Standard & Poor's South & southeast Asia ratings MD.
S&P's lowered its outlook on India's long-term sovereign rating in February from stable to negative, while maintaining the rating itself atBBB-, the lowest investment grade. "That outlook action reflected concerns over the rapidly rising fiscal deficit," Smith told DNA Money on Wednesday. "The rating is constantly being reviewed. We have an ongoing dialogue with the government, and there are positive signs, but concerns remain."
Asked if the upcoming Budget might give occasion to revise the rating or the outlook, Smith said that while the budget "will be an important thing to look at," she would not comment on the timing of any action, since "ratings are reviewed all the time."
Indian corporate debt levels were generally more conservative and reflected lower leverage than in many other countries "and certainly relative to debt levels of many corporates in the US," Smith pointed out. But beyond that, corporates in certain sectors were rather less leveraged than others, she added. Technology companies had "virtually no leverage, and private oil companies are not highly leveraged."
The same was true of the Indian banking system, observed Smith.
"Especially if you look at it in the framework of the global financial crisis, the banking system in India has performed very well. There is more stability in the Indian system than there is in many other systems around the world."
And although regulatory systems too were "relatively good" in India, there was "room for increased risk management," she added. Particularly, since there was always the risk of increases in non-performing assets "in an economic environment that over the past couple of years has not been as robust as it was earlier."
Across Asia-Pacific, there had been a large increase in the downgrades of corporate debt ratings this year as compared to last year, as a consequence of the deteriorating economic environment.
Many countries were experiencing "recessionary characteristics," and these impacted different sectors differently," noted Smith.
Whereas the telecom sector as a whole had performed better, the automotive, steel and real estate sectors had been more vulnerable.
Thursday, June 4, 2009 1:47 IST
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