Global credit rating agency Moody’s Investors Service on Tuesday revised India’s sovereign credit rating outlook to stable from negative, reported Mint.
The agency, however, maintained the country’s credit rating at “Baa3” – the lowest investment grade.
Moody’s had downgraded India’s rating in June last year, saying that the country faces a prolonged period of slower growth relative to its potential amid rising debt and persistent stress in parts of the financial system.
Moody’s revised the outlook on Tuesday due to decreasing risks posed by the financial sector to the overall economy. “With higher capital cushions and greater liquidity, banks and non-bank financial institutions pose a much lesser risk to the sovereign than Moody’s previously anticipated,” the credit rating agency said in a statement.
A sovereign credit rating is an independent evaluation of a country’s creditworthiness, or the extent to which it is suitable to receive credit. The rating can give investors insights into the level of risk associated with investing in the country.
Besides Moody’s, S&P Global Ratings also has a stable outlook on India’s credit rating. Fitch, another credit rating agency, has a negative outlook, reported Business Standard.
All three rating agencies have given India the lowest investment grade.
In its statement, Moody’s said that India’s solvency (the degree to which the current assets of an entity exceed its current liabilities) has strengthened. This, the rating agency said, has improved the credit conditions.
“Bank provisioning has allowed for the gradual write-off of legacy problem assets over the past few years,” it said. “In addition, banks have strengthened their capital positions, pointing to a stronger outlook for credit growth to support the economy.”
Moody’s also said that India’s downside risks to growth because of the coronavirus pandemic has reduced with rising vaccination rates and more selective use of restrictions on economic activity.
The agency also expects India’s real Gross Domestic Product growth to rebound to 9.3% in financial year 2021-’22 from 7.3% in 2020-’21, reported The Times of India. It expects the growth rate to be 7.9% in fiscal 2022-’23.
Meanwhile, KV Subramanian, chief economic adviser in the finance ministry, said Moody’s upgrading India’s sovereign rating outlook acknowledges the government’s assessment that the fundamentals of the economy are strong.
“They have mentioned that the change in outlook stems from lower risks from the financial sector and its impact on the real economy,’ he said. “This is crucial because the slowdown in growth pre-pandemic itself was because of the financial sector.”