Credit rating is matter of opinion: Uday Kotak on Moody's downgrade

Not seem to be convinced with India's sovereign rating downgrade by Moody's, Kotak Mahindra Bank managing director Uday Kotak on Tuesday said credit rating is a matter of opinion. Moody's Investors Service on Monday downgraded the country's rating by one notch to 'Baa3', the lowest in the investment grade, with a negative outlook on worries over growth and fiscal risks.

"As of now, including the global financial crisis, that matter of opinion (rating) has proved that there has been no legal liability for that opinion being right or wrong," Kotak quipped. It is to be noted that the big three rating agencies, including Moody's, came under heavy criticism after the global financial crisis for giving favourable ratings to insolvent institutions like Lehman Brothers, which triggered the global meltdown in 2008.

Even in India, rating agencies were under scrutiny over the IL&FS crisis and some other incidents. "Having said that Moody's rating was higher than S&P and Fitch so it has brought it down to that level but with the negative bias. The way I would look at is...rather than being in denial, I will go through Moody's report and see where are the areas where we can improve," he said at CII annual meet.

Kotak said, he would agree on the fact that India needs to get growth back because there is perception that trend growth or average growth rate is slowing down. "Unless our trend growth rate goes up we will have a bigger problem in getting our fiscal deficit down. So, the positive message that I would take out of this constructively is not as much as rating downgrade or even the negative bias but what do we do to get trend growth back to a better level," he said.

He also said that there is a need to strengthen financial institutions at a time when there is a risk of non-performing assets (NPAs) going up. The public sector banks would need financial support from the government to drive the economy, he said, adding about Rs 3 lakh crore may be required for public sector banks.

"The COVID-19 outbreak and resulting lockdown has impacted adversely the real economy, businesses, individuals, Government and financial sector. While the government is facing the risk of higher fiscal deficit, the banking sector urgently needs the recapitalisation to the tune of 3-4 lakh crore to meet the lending requirements," he said. Within the private sector, Kotak said, "we have a situation where quite a few banks are in the business of banking but unable to lend".

On the growth front, he said, the GDP is likely to see a contraction during the current fiscal. However, the endeavour should be how quickly India is back on its 7-8 per cent growth trajectory, Kotak added.

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