Moody’s Investors Service citing a prolonged period of slow growth in Asia’s third-largest economy has now downgraded India’s credit rating to a notch above junk. Rising debt and persisting stress in parts of the financial system in India are some of the challenges that India faces right now. The rating has been cut to Baa3 from Baa2, the lowest rating in investment grade. In a statement, the agency said that the rating cut was not driven directly by the impact of the coronavirus lockdowns but by the fact that pandemic had amplified the vulnerabilities in India’s credit profile that were present and were building even before the shock of the pandemic set in. The agency further maintained its outlook on the country as “negative”.
Moody’s had previously upgraded India’s rating from Baa3 to Baa2 in November 2017 which was seen as an endorsement of reforms undertaken by Prime Minister Narendra Modi’s government. The Indian government has announced several steps to help the poor and small and medium businesses amid this pandemic, but Moody said it does not expect that these measures will durably restore real GDP growth to around 8%, which had seemed within reach just a few years ago. The agency further claimed that the pandemic will impact the rate of growth, with the country set to witness 0 per cent growth in the ongoing fiscal year and it does not expect India to see any growth in the financial year 2021. The spread of the pandemic in the country has “significantly reduced the prospects of a durable fiscal consolidation.”
Moody’s Credit Rating
Like every other adult, you have a credit score too, which is a rating that indicates how safe it is (or how risky it is) to lend you money. Corporations and governments borrow money, too. And they, too, have credit ratings. Moody’s Investors Service, one of the major credit rating agencies, grades corporate and municipal bonds on a scale from “Aaa,” for the best of the best, to “C,” for those at the bottom of the barrel.
Moody’s Rating Scale-
Moody’s Global Long-Term Rating Scale
Aaa Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
Aa Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A Obligations rated A are judged to be upper-medium grade and are subject to low credit risk.
Baa Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.
Ba Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
B Obligations rated B are considered speculative and are subject to high credit risk.
Caa Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.
Ca Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
C Obligations rated C are the lowest rated and are typically in default, with little prospect for recovery of principal or interest.
Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking, and the modifier 3 indicates a ranking in the lower end of that generic rating category.
Moody’s Global Short-Term Rating Scale
P-1 Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
P-2 Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
P-3 Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
NP Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
