May 2, 2017 / 10:43 AM / 4 months ago

Fitch Affirms India at 'BBB-'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, May 02 (Fitch) Fitch Ratings has affirmed India's Long-Term Foreign- and Local-Currency Issuer Default Ratings at 'BBB-'. The Outlooks are Stable. The Country Ceiling is also affirmed at 'BBB-' and the Short-Term Foreign- and Local-Currency IDRs are affirmed at 'F3'. KEY RATING DRIVERS India's sovereign ratings balance a strong medium-term growth outlook and favourable external balances with a weak fiscal position and difficult business environment. However, the business environment is likely to gradually improve with the implementation and continued broadening of the government's structural reform agenda. India's positive GDP growth outlook stands out among peers. Real GDP growth averaged 6.9% over the five years to end-March 2017 (FY17), considerably higher than the 'BBB' range median of 3.2% and remaining so even if the uplift in growth resulting from the GDP data revision by the Central Statistical Office in February 2015 is discounted. Fitch forecasts India's real GDP growth to accelerate to 7.7% in FY17 and FY18, from 7.1% in FY16. The agency expects structural reforms to increase growth, along with higher real disposable income supported by the implementation of the 7th Pay Commission recommendations and a monsoon with average rainfall expected by the Indian Meteorological Department. The government has been consistently rolling out its ambitious reform agenda for almost three years and remains committed to continued reforms. A rise in foreign direct investment (FDI) inflows to USD55.5 billion in FY16, from USD36.0 billion in FY14, shows that India is becoming a more attractive destination for foreign investors. The government has also hinted at further reforms to support FDI inflows in its latest Budget. The goods and services tax (GST) and the Insolvency and Bankruptcy Code represent two important legislative reforms that have now passed parliament. The impact of the reform programme on investment and real GDP growth will depend on how it is implemented and the extent to which the government continues its strong drive to improve the still-weak business environment. The authorities' focus on reining in inflation is starting to bear fruit and might represent a structural shift away from the high inflation rates of the past. The authorities remain committed and institutions appear in place to ensure a structural fall in consumer price inflation from the 8.0% average of the previous decade. The Reserve Bank of India (RBI) is building a solid monetary policy record, broadly meeting intermediate targets of the glide path towards the medium-term inflation target of 4% +/- 2%, while easing policy in the previous two years where possible. At the same time, the framework has not yet been seriously tested in an environment of unfavourable international oil and food prices. Keeping prices under control also requires government support, for example, by limiting minimum support price rises for agricultural products. Weak public finances continue to constrain India's ratings, with a high general government debt burden of 67.9% of GDP ('BBB' median: 40.9%) and wide fiscal balance of -6.6% of GDP ('BBB' median: -2.7%), as estimated by Fitch for FY17. However, there are some early indications that fiscal policy might become more focussed on bringing down debt. An official committee reviewing the Fiscal Responsibility and Budget Management Act has recommended lowering government debt to 60% of GDP. It remains uncertain if the government will commit to the target suggested by the committee, but in his February 2017 budget speech, the finance minister explicitly recognised the low number of direct taxpayers, stating that India is "largely a tax non-compliant society", which is a significant change in rhetoric. The central government's FY18 budget also continues its gradual consolidation efforts irrespective of the difficult trade-off with the desire to spur infrastructure spending. Significant contingent liabilities for the sovereign continue to emanate from public sector banks. The banking sector's non-performing loans (NPLs) problem is well recognised by authorities, but continues to linger. Fitch expects NPLs to rise to 9.7% of total loans by end-FY17, from 4.6% in FY15, due mainly to stricter implementation of standards. NPLs are most prevalent in public-sector banks, which are likely to find it difficult to access new capital from non-government sources. It is not likely that the government's budgeted INR700 billion (USD11 billion or 0.5% of GDP) capital injection into banks between FY16 and FY19 will be sufficient. Fitch estimates the banking system, including private sector banks, needs capital of around INR6 trillion (USD90 billion or 3.2% of GDP in FY19). India is not immune to external shocks, but the country's strong external finances make it less vulnerable than many of its peers. A narrower current account and pick-up in FDI caused India's basic balance to turn positive in FY16. Fitch expects the current-account balance to narrow to -0.9% in FY17 ('BBB' median: -1.5%) and foreign reserves to build up to 8.4 months of current external payments ('BBB' median: 6.6 months). India is also less vulnerable to trade shocks due to its more domestically-based economy, which is not part of the Asian supply chain, and lower commodity export dependence compared with some peers. India's economy is less developed on a number of structural metrics than many of its peers. Average per capita GDP remains low, at USD1,714, compared with the 'BBB' range median of USD9,701. Governance standards also remain weak, as illustrated by a low score for the World Bank governance indicator (46th percentile versus the 'BBB' median of 58th percentile). SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns India a score equivalent to a rating of 'BBB-' on the Long-term foreign-currency IDR scale. Fitch's sovereign rating committee did not adjust the output from the SRM to arrive at the final long-term foreign-currency IDR. Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a long-term foreign-currency IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM. RATING SENSITIVITIES The Stable Outlook reflects Fitch's assessment that upside and downside risks to the ratings are broadly balanced. The main factors that, individually or collectively, could trigger positive rating action are: - Implementation of fiscal initiatives that increase the likelihood of a decline in general government debt over the medium-term - An improved business environment resulting from reform implementation and contained inflation, which would support higher private investment and real GDP growth The main factors that could trigger negative rating action are: - A rise in the public-debt burden, which may be caused by stalling fiscal consolidation or greater-than-Fitch-expected deterioration in the banking sector's asset quality that could prompt large-scale sovereign financial support - Loose macroeconomic policy settings that cause a return of persistently high inflation and widening current-account deficits, which would increase the risk of external funding stress KEY ASSUMPTIONS - The world economy performs broadly in line with Fitch's latest Global Economic Outlook, published in March 2017 - Economic activity will not be seriously disrupted by materialising political risk or social unrest Contact: Primary Analyst Thomas Rookmaaker Director +852 2263 9891 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Secondary Analyst Stephen Schwartz Senior Director +852 2263 9938 Committee Chairperson Michele Napolitano Senior Director +44 20 3530 1882 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Country Ceilings (pub. 16 Aug 2016) here Sovereign Rating Criteria (pub. 18 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below