Moody's is reviewing its rating of state-run Life Insurance Corp of India (LIC), the country's largest portfolio investor, for possible downgrade over its high exposure to sovereign debt and lack of revenue sources outside of India.
The review comes after rival agency Standard and Poor's cut India's credit rating outlook on April 25 to negative from stable, citing hefty fiscal and current account deficits and political paralysis in Asia's third-largest economy.
"Moody's believes that the credit quality of financial institutions, with high levels of domestic sovereign debt holdings, and low geographically diversified revenue and earnings sources, is closely linked to the sovereign's credit strength," the ratings agency said in a statement on Monday.
Moody's rates LIC Baa2 with a stable outlook, a notch higher than Moody's Baa3 sovereign rating for India, which is the lowest investment grade rating. Moody's in December issued a stable outlook for India.
"LIC's rating needs to reflect more closely the risk that the company shares with the Indian sovereign," Moody's said.
As of December 31, government securities and government guaranteed bonds represented 54 percent, or about USD111 billion, of LIC's total cash and invested assets, Moody's said.
Insurance companies in India are required to invest at least 50% of their income in government bonds.
Moody's said it is also wary about LIC's rising exposure to public sector banks through equity investment and its recent purchase of shares in ONGC, which is about 70% owned by the government.
LIC drew criticism after stepping up to buy most of the USD2.5 billion in ONGC shares auctioned by the government in a flawed auction earlier this year that failed to generate much market interest.
READ MORE ON Moody's, Standard and Poor's, S&P, credit rating, fiscal deficit, current account deficit, rating outlook, Asia, financial institutions, debt holdings, LIC
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