Global rating agency Moody's on Monday downgraded the standalone credit ratings of the country's largest three private sector lenders -ICICI Bank, HDFC Bank and Axis Bank -- to D+ from C- to align their individual ratings with that of the sovereign rating.

As a result, the hybrid debt ratings of these banks, except HDFC Bank, will be negatively impacted.

The standalone bank financial strength rating (BFSR) of ICICI Bank, HDFC Bank and Axis Bank are revised down to D+ from C-, which now maps to a baseline credit assessment (BCA) of Baa3 from Baa2 on the long-term scale, Moody's Investors Service said in a statement issued in Singapore.

The agency also downgraded the hybrid ratings of Axis Bank and ICICI Bank to Ba3 from Ba2. But it said all the revised ratings carry stable outlooks.

"The rating action follows in the context of the ongoing global review affecting all banks whose standalone ratings are higher than the rating of the government where they are domiciled, and they conclude the review that was initiated on April 30, 2012," Moody's Investors Service vice-president and senior credit officer at financial institutions group, Beatrice Woo, said in the statement.

The affected banks downplayed the rating action, saying this is in-line with the sovereign rating and does not in any new way negatively reflect their credit standing.

Moody's also said the other ratings of these banks are unaffected and have stable outlooks as detailed below.

"Our review indicates that there are little reasons to believe that these banks will be insulated from a government debt crisis. More particularly, we note their significant direct exposure to the government securities, equivalent to 239 percent of tier 1 at Axis Bank, 226 percent of tier 1 at HDFC Bank and 143 percent of tier 1 capital at ICICI Bank (based on latest publicly available data).''

"In addition, these banks are primarily domestic institutions with similar macroeconomic exposures as the sovereign government. Therefore, we view the lower standalone ratings -- which are now positioned at the rating of the government - as more appropriate to capture the credit profiles of the banks," Wood said in the statement.

Explaining the rationale for the downgrade, Woo said, "The action reflects that their credit worthiness are highly correlated with that of the government's credit strength taking, into account (a) the extent to which their business depend on the domestic macroeconomic and financial environment, (b) the degree of reliance on market-based, and therefore more confidence-sensitive, funding and (c) their direct or indirect exposures to domestic sovereign debt, compared with their capital bases."

For all the banks, the key drivers for the rating action were (a) relatively low level of cross-border diversification of their operations, (b) high level of balance-sheet exposure to domestic sovereign debt, compared to their capital bases, (c) franchise resilience and intrinsic strength within the operating environment and (d) absence of ongoing support from foreign ownership.

She further said these rating actions derive from Moody's updated assessment of the linkage between the credit profiles of sovereigns and other institutions domiciled within the sovereign.

On the downward revision of Axis Bank and ICICI Bank's hybrid debt, she said, "Their adjusted BCA is in line with their respective BCA as no parental or cooperative support is imputed. Therefore, a lower BCA becomes the starting point for notching hybrid securities and results in lower hybrid ratings in both banks' cases."

The starting point for rating hybrid securities is the adjusted BCA, which reflects a bank's standalone credit strength as expressed through its BCA and includes uplift from parental and/or cooperative support, if applicable, but excludes systemic support, Moody's said.

As of March 2012, ICICI Bank had an asset base of Rs 4.74 trillion, HDFC Bank had Rs 3.4 trillion and Axis Bank Rs 2.85 trillion.