S&P has lowered the foreign-currency ratings of Larsen & Toubro, Reliance Industries and Telco, and term-lending institutions, ICICI and Industrial Development Bank of India, besides Bank of Baroda, to BB from BB+. The outlook on these entities has also been revised from negative to stable.

However, the short-term foreign-currency rating of the banks and financial institutions have been left untouched. "The B short-term foreign-currency ratings for all financial intermediaries, along with that of the State Bank of India, are not affected by the rating actions and stand affirmed," stated an S&P press release.

The reasons cited for the downgrade is the same as those cited for the sovereign rating downgrade announced on Thursday. "The sovereign downgrade reflectsfading prospects for meaningful fiscal adjustment, weakening the stainability of recent economic growth rates and potentially further raising the country's already high external-debt burden," the release stated. Bankers said S&P's move will not have any impact on the overseas Indian corporate debt market as an announcement of this nature was expected. "The S&P downgrade has neither shocked nor surprised us. The agency has merely aligned its views in line with Moody's, which had pushed the country to below investment grade by a two-notch downgrade in June this year," ICICI treasury head Natchiket Mor said

The spreads on local papers had shot up to over 500 basis points above Libor immediately after Moody's downgrade in June. This has, however, come down recently following aggressive purchases by overseas branches of domestic banks. At present, short-term Indian papers of five-year maturity are quoting at 300-375 basis points above Libor, while papers of 10-year maturity are being quoted at 500 basis pointsabove Libor.

Very few domestic corporates are planning to raise foreign debt because of the high pricing on emerging markets papers, said an SBI official. Corporates have been staying away from overseas debt for more than a year because of lack of appetite of emerging markets papers in wake of the south-east Asian crisis.

The only action on the ECB front is related to re-financing deals, where some corporates are trying to raise funds to buy back their own papers that are quoted at a discount, said the official. In such cases, a downgrade will not have much of an impact, he said.