Fitch Ratings head, Asia sovereign ratings, Brian Coulton, cited India-Pakistan border tensions, the Centre's failure to reduce the fiscal deficit and the possible impact of  rising global interest rates as reasons for leaving India's sovereign rating unchanged despite the improvement in the economy in terms of corporate debt restructuring, the strengthening of the Indian banking system and the improvement in the current account balance.

"On account of the Pakistan issue, there is a high level of war risk in India relative to other countries having a similar rating," said Coulton. Fitch today does not rate Pakistan, though he said that other global rating agencies rate the country at single B.

Coulton was in Mumbai on Friday, addressing a gathering of investment bankers and treasury heads on issues influencing India's sovereign rating, which stands at BB (stable). India's foreign currency rating stands at two notches below investment grade.

The rating of its Asian revival, China, stands five notches above India at A- (with positive outlook). "The biggest difference is in its external balance sheet, with central bank reserves at $ 400 billion against an external debt of $ 200 billion, not to mention its high growth rate," said Coulton

India however, scores over China in terms of its banking sector, which Coulton said was a source of major risk for the Chinese government looking at the 30 per cent non-performing assets, against India's 10 per cent.

Coulton however, pointed out that the existing yield curve in the Indian bond market was not sustainable looking at the rising interest rates by central banks of England and Australia. This could see an impact on the Indian scenario, adding that should US interest rates rise, the existing yield curve would not be sustainable.

Asked how he viewed the Indian government's announcement to curb external commercial borrowings, Coulton said the Centre was being "ultra conservative" as it does not wish to bring about any systematic risks in light of rising interest rates in global markets.

While Coulton sees the move as interfering with free market operations, he was quick to add that Indian corporates did not indulge in much large scale borrowings.

While India's foreign currency rating stands at BB, its local currency rating by Fitch is at BB+. Coulton expected the two ratings to converge in time to come, but failed to give any timeframe.