Moody's downgrades sub-debt of 11 banks

Moody’s Investors Service on Thursday downgraded subordinated debt ratings of 11 Indian banks, including SBI, ICICI Bank and HDFC Bank.

The subordinated debt and junior subordinated debt ratings of eight public sector banks and three private lenders were lowered following a review that started on June 3, Moody’s said. The senior obligation ratings of the banks and their stand-alone baseline credit assessments were not affected, it said.

The other banks affected are Axis Bank, Bank of Baroda, Bank of India, Canara Bank, IDBI Bank, IOB, Syndicate Bank and Union Bank of India. The downgrade reflects the increasing international trend of imposing losses on holders of subdebt securities (creditor “bail-in“) as a pre-condition for distressed banks to receive government support, Moody’s said. As a consequence, Moody’s assumes that Indian government support is less likely to be forthcoming for the holders of such securities.

“The global financial crisis has demonstrated that support can be provided selectively, with the costs being shared with subordinated creditors of a bank, without triggering any contagion, as it was previously feared,” Moody’s VP Gene Fang said in the statement.