NEW DELHI, Nov. 9 (UPI) -- Moody's Investors Service downgraded India's banking system to "negative" from "stable," saying its asset quality could deteriorate in the next 18 months.
"India's economic momentum is slowing because of high inflation, monetary tightening, and rapidly rising interest rates," the global ratings agency said on its Web site.
"At the same time, concerns have emerged over the sustainability of the recovery in the U.S. and Europe, and the rise in the borrowing program of the Indian government, which could drain funds away from the private credit market," Moody's Vice President Vineet Gupta said.
Moody's rates India's top 15 commercial banks, which together accounted for about 66 percent of the system's total assets at the end of March. The Indian banking system is largely made up state-owned banks, which account for 75 percent of the market in asset terms.
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"With asset quality, given the tightening environment, we anticipate that it will deteriorate over the next 12-18 months, thereby causing an increase in provisioning needs for the banks in (the next two financial years," Gupta said.
The announcement comes as global markets have been hit by the crisis in Greece and Italy, and a number of European banks face their own turmoil.
Moody's decision would mean Indian banks may have to pay more for overseas borrowings.
The Indian government, however, did not appear to be concerned by Moody's announcement, while some bankers said the Indian banking system is safe and its profitability remains good, Indian media reports said.
Moody's said Indian banks have stable customer deposit bases and the government is expected to remain committed to providing support for both public and private banks.
