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CITIBANK and its four affiliates along with associates of Barclays, Deutsche Bank and JP Morgan have lost their triple A status in India. Rating agency Crisil has downgraded these institutions following recent rating changes by Standard & Poor’s (S&P) of large global financial institutions and the standalone credit quality of the Indian operations. The downgrade will make it more expensive for these finance companies to raise long-term funds in the money market. They may also lose investors, including some mutual funds, who restrict their investments to triple A rated paper.

The entities that have lost their triple A rating include Barclays Investments & Loans (India), Citibank NA, Citicorp Capital Markets, Citicorp Finance (India), Citicorp Maruti Finance Ltd, Citifinancial Consumer Finance India, Deutsche Investments India and JP Morgan Securities (India).

CRISIL’s short-term debt ratings for seven of these entities, and for three entities that only have short-term ratings, have been reaffirmed at ‘P1+’ the highest short term rating possible. Short term debt mainly refers to instruments like commercial paper. The coveted triple A status indicates that a default on long-term payment obligations is near impossible.

Raman Uberoi, Senior Director - Ratings, CRISIL, said, “CRISIL has made changes in the levels at which it translates global ratings of financial institutions onto the CRISIL rating scale.” Further, given the parent institutions’ weakened business prospects and need to preserve capital, CRISIL said it is appropriate to reassess the support that the parent could provide to the Indian operations, both on an ongoing basis and in the event of distress. CRISIL feels that majority ownership and shared name imply a strong ongoing moral obligation on global banks to continue supporting their Indian arms. According to Tarun Bhatia, Head - Financial Sector Ratings. CRISIL, “CRISIL’s ratings incorporate the expectation that the parents will treat the debt of their Indian subsidiaries as their own debt. The expectation of such continued support significantly offsets the impact of any existing or potential deterioration in the standalone performance of the Indian entities.”

Global financial institutions operate in India either through subsidiaries or branches. According to CRISIL, the importance of many of these for their parents could reduce over the medium term and Indian operations will find it difficult to meet their parents’ return expectations, especially given increased regulatory capital adequacy requirements.

If the operating environment remains difficult, the cost of supporting Indian operations may eventually become too high for some parent institutions to justify continued support. “However, even if this were to happen, CRISIL expects that such institutions would exit in an orderly manner, ensuring full and timely repayment of all debt obligations. CRISIL’s ratings continue to strongly factor in this “expectation,” a statement issued by the agency said.

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