924 Why should India give undue value to the predictions made by Fitch Rating?

India is a Sovereign Country. It can conduct, manage and organise its own Economy in the best manner, which it deems fit, keeping in view the welfare of its People. Whoever in the Government of India has first started this practice of approaching Credit Rating Agencies such as Moody's, Standard and Poor, Fitch Ratings for getting the country rated by them, didn't/do not seem to have taken into consideration that this country of ours is a Sovereign Nation. The Rulers of India of those days, might have, in their haste and hurry, and idiotic craze to mobilise foreign investments, might have succumbed to the temptation of approaching International Credit Rating Agencies such as Standard and Poor, Moody's, Fitch Ratings etc. India may be, unnecessarily, paying them some fees every year, towards their services. India, may be lobbying using services of some Consultant Lobbyists with the Rating Agencies for getting improved ratings. But, this type of this do not befit a Sovereign Country, which claims to be the 6th Largest Economy in the world, and wants to become the World's Largest Economy in near future, at a phenomenal speed.

Context. Observations made by Fitch Ratings

Fitch Rating is reported to have commented on the capabilities of Indian Public Sector Banks:-

Fitch Ratings-Mumbai/Singapore-08 March 2017: Some Indian banks remain at risk of skipping coupon payments on capital instruments over the next couple of years; despite measures by the Reserve Bank of India (RBI) to ease pressures, and injections of government capital into state banks, says Fitch Ratings. Mid-sized state banks are the most at risk of breaching capital triggers.

Distributable reserves at small- to mid-sized state banks were down by one third in 9M17 compared with financial year 2015 (FY15, to March 2015), reflecting persistent losses and weak internal capital generation. Five state-owned banks suffered losses that were equivalent to more than 30% of distributable reserves in 9M17 alone. The RBI's recent decision to allow banks to make additional Tier 1 (AT1) coupon payments from statutory reserves may have helped mitigate short-term coupon-deferral risks, but state banks' reserves are likely to continue falling.

The RBI has made several regulatory adjustments in the last few years to avoid potential damage to sentiment in the domestic market for capital instruments. These changes have been applied to the sector as a whole and are not unique to India, but their timing suggests the RBI has felt pressure to provide headroom to state banks.

Some banks are also at risk of missing coupon payments on capital instruments as a result of breaching minimum capital requirements. Fitch's analysis indicates that the total capital adequacy ratio (CAR) of 12 banks was at or below the 11.5% minimum that will be a prerequisite for payment of coupons on both legacy and Basel III AT1 capital instruments by FYE19. There were also 11 banks with CET1 ratios at or below the 8% minimum that will be required to make coupon payments on AT1 instruments by FYE19.

We estimate that banks require around USD 90 billion in new capital by FYE19 to meet Basel III standards - state banks account for around 80% of that. State banks are constrained in raising new equity due to heavy discounts on valuations while limited market depth remains a hurdle to issuing capital instruments domestically. Banks which are capable of tapping overseas markets have been reluctant to do so due to pricing concerns. This leaves state banks largely reliant on the government for recapitalisation. The USD10.4bn that the government has earmarked for capital injections into state banks is unlikely to be enough to support balance-sheet growth.

yb-donkey's personal views, not imposed on others. Criticism is welcome.

ARE ALL THE EUROPEAN BANKS AND AMERICAN BANKS, PARAGONS OF VIRTUE?

These International Credit Rating Agencies rate European and American Banks quite favorably, overlooking their exposures and short-comings. Many Euro and American Banks fudge their Balance Sheets. Yet, these rating agencies consider the Western Banks as paragons of virtue. If they were really paragons of virtue, and exemplary Bankers, how could the 2008 Wall Street Crises take place? How could the 2008 Recession threaten the whole world? Even today, American Banks have not rectified their sub-prime lendings, either through recoveries, or by strengthening their Credit Disbursement and Supervision Methods.

It is my humble personal view that India should shed this ugly lust to get foreign investments from abroad, by getting good ratings from International Credit Rating Agencies. India should not pay any fees to these rating agencies. India should not lobby for good ratings. If no foreign individual / institutional investors do not want to invest in India, because ratings are not good, India can leave their decisions to their own wisdom(s).

It is my humble personal view that Indian Public Sector Banks need not abide even by the Basle (Basel) Capital Requirement Norms. Reason: People of India, trust Indian Public Sector Banks greatly, whether they have adequate Capital or not. The accumulation of Non Performing Assets of Indian Public Sector Banks is mainly owing to failure of Legal Enforcement Apparatus for issuance of decrees, and sale of Stressed Assets. Indian Banks should take the task of selling Stressed Assets on a war footing. Government of India should take steps to plug the loop holes in the SARFAESI ACT 2002 ( Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ) which empowers banks to auction residential and commercial properties to recover loans. Public Sector Banks should be permitted, and they should not hesitate, to sell assets even at BELOW RESERVE PRICE. Once Indian Public Sector Banks start selling high value assets both primary and collateral securities even below Reserve Prices, willful defaulters get shivering feets, and they will recycle their diverted stashed funds, to save their stressed assets.

This is a thousand page subject. Some other day, some other time.

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