Fitch keeps India at ‘BBB-‘ in latest ratings

Fitch Ratings has kept India’s rating at ‘BBB-‘ for the 12th consecutive year. According to Fitch India’s Long-Term Foreign-Currency Issuer Default Rating (IDR) is at ‘BBB-‘ with a Stable Outlook.

Fitch said that, “India’s ratings balance a strong medium-term growth outlook and favourable external balances relative to peers with weak fiscal finances, a fragile financial sector and some lagging structural factors” were key rating drivers.
India was expecting better rating from Fitch this time after Rival Moody’s Investors Service upgraded India’s rating in November 2017.

According to Fitch, “India’s GDP growth has the potential to remain strong for a substantial period, as continued structural reform implementation may enhance productivity. Moreover, convergence with more developed economies can be expected as per capita GDP is the lowest among ‘BBB’ range peers (3.2% of the U.S. level versus the ‘BBB’ median of 18.9%).”

Fitch agrees that although the authorities are in the process of cleaning up the banking sector, but “banks do not seem in a position to significantly spur credit growth, as they still have weak core capital positions. The banking sector’s legacy non-performing loan (NPL) problem is well recognised by the authorities and public-sector banks have been recapitalised, but the NPL ratio could still rise from 11.6% in FY18 (state bank average: 15.6%) due to residual stress. Pressures to support credit growth could continue in the run up to the general elections to be held by May 2019, and relaxation of lending regulations to some troubled sectors could delay the clean-up of the banking sector.”

Fitch also raises concern over continuous depreciation of Rupee in 2018. Fitch said, “The depreciation of the rupee, by 11% against the US dollar since the beginning of 2018 has been the steepest among major currencies in Asia, despite intervention that resulted in a USD33 billion loss in foreign-exchange reserves between April and October. The currency could remain under pressure as the positive differential between the U.S. and Indian policy rates continues to narrow.”

“India is also more resilient to external shocks than many peers given the comparatively closed nature of the economy,” Fitch added.

“The Indian economy continues to exhibit some structural weaknesses relative to peers and is less developed on a number of metrics. Governance standards continue to be weak, as illustrated by a low score for the World Bank governance indicator (47th percentile versus the ‘BBB’ median of 59th percentile). India’s ranking on the United Nations Human Development Index (31st percentile versus the ‘BBB’ median of 68th percentile) also indicates relatively low basic human development.” Fitch added in its report.

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