New credit rating rules could downgrade 100 Indian companies – Moody’s ICRA

MUMBAI, Aug 10 (Reuters) – The Indian unit of credit rating agency Moody’s, ICRA, said on Wednesday that nearly 100 companies with debt of 350 billion rupees ($4.40 billion ) would be likely to be downgraded after the central bank tightened rating methodologies.

The companies likely to be affected are mainly in the energy, health, engineering, construction and roads sectors.

“Our assessment suggests that if there is no change in the credit profile of these entities…there could be an average impact of around two notches on existing ratings,” said Jitin Makkar, senior vice president at Icra.

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As a result, Indian banks may have to set aside an additional Rs 4 billion given the higher capital requirement for lower-rated companies, ICRA said.

The Reserve Bank of India issued new guidelines in April, noting that there was wide variation in the rating mechanism and methodologies adopted by different credit rating agencies.

Under the changes, rating agencies can only consider an explicit third-party guarantee for a company’s debt, while other widely accepted forms of support such as letters of support or equity pledges will no longer be taken into account.

($1 = 79.4930 Indian rupees)

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Reporting by Nupur Anand; Editing by Kirsten Donovan

Our standards: The Thomson Reuters Trust Principles.

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