The Indian unit of credit rating agency Moody’s, ICRA, said on Wednesday that nearly 100 companies with debt totaling 350 billion rupees ($4.40 billion) are likely to be downgraded after the central bank tightens rating methodologies.
The companies likely to be affected are mainly in the energy, healthcare, engineering, construction and road sectors.
“Our assessment suggests that if the credit profile of these entities does not change…there could be an average impact of about two steps on the existing ratings,” said Jitin Makkar, senior VP, Icra.
As a result, Indian banks may have to set aside an additional 4 billion rupees given the higher capital requirements for lower-rated companies, ICRA said.
The Reserve Bank of India issued new guidelines in April, noting that there was wide variation in the review mechanism and methodologies adopted by different rating agencies.
Under the changes, the rating agencies can only consider an explicit third-party guarantee for a company’s debt, while other commonly accepted forms of support, such as letters of support or pledged shares, are no longer considered.
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