A rating change could have some 'cliff effects', the Reserve Bank of India (RBI) has said in its Fifth Financial Stability Report, possibly sounding a warning over the consequences of a possible rating cut.
"This could affect both availability and cost of foreign currency credit lines for Indian corporates further. The impact is also being felt by Indian banks as they are the primary source of foreign currency-denominated funding for Indian firms like buyer's credit," India's Central Bank has said.
The report points to the fact that India's financial system remains robust despite increase in risks to stability primarily due to global risks and domestic macroeconomic conditions.
"Banks in India will migrate to Basel III from a position of relative strength but there could be challenges in the form of higher cost of capital," the RBI has stated. .