Moody's affirms ratings of nine Indian banks, upgrades outlook to stable; SBI, HDFC Bank, ICICI, Axis Bank in list

This rating action is driven by Moody's recent affirmation of the Indian government's Baa3 issuer rating and change in outlook to stable from negative.

Oct 07, 2021 01:10 IST India Infoline News Service

Moody's Investors Service ("Moody's") has taken rating actions of nine Indian banks. These are - Axis Bank, Bank of Baroda, Canara Bank, Export-Import Bank of India (EXIM India), HDFC Bank, ICICI Bank, Punjab National Bank (PNB), State Bank of India (SBI) and Union Bank of India.

Moody's has affirmed the long-term local and foreign currency deposit ratings of Axis, HDFC Bank, ICICI and SBI at Baa3, and the long-term issuer rating of EXIM India at Baa3. At the same time, their rating outlooks have been changed to stable from negative.

This rating action is driven by Moody's recent affirmation of the Indian government's Baa3 issuer rating and change in outlook to stable from negative.

Moody's has also affirmed the Ba1 long-term local and foreign currency deposit ratings of BOB, Canara, PNB and Union Bank, as well as their b1 BCAs. Their rating outlook has been changed to stable from negative.

For rating affirmation and change in the outlook of Axis Bank, HDFC Bank, ICICI Bank, SBI and EXIM:

Moody's said the affirmation of Axis, ICICI, HDFC Bank and SBI's deposit ratings and EXIM India's issuer ratings of Baa3 and change in outlook to stable follows the change in outlook on the sovereign rating to stable. The previous negative outlook on the sovereign rating drove the negative outlook on these banks, because of strong linkages to the sovereign credit profile.

For rating affirmation and change in the outlook of Bank of Baroda, Canara Bank, PNB and Union Bank:

Moody's said that affirmation of BOB, Canara, PNB and Union Bank's ratings and BCAs, and change in outlook to stable from negative, reflect the fact that despite the significant economic challenges since the onset of the pandemic, their asset quality has only deteriorated modestly while capital has improved.

"Corporate asset quality has improved as legacy issues have been resolved while deterioration in retail asset quality was relatively moderate. Asset quality will further improve if economic activity continues to normalize," Moody's said.

Further, Moody's stated that the core equity Tier 1 (CET1) ratios of these four banks were higher at the end of June 2021 compared to March 2020. Capital increased as all four raised equity from capital markets. The ability to access equity capital markets is a key credit positive as it reduces the dependence on the government for capital.

"Profitability will improve over the next 12-18 months as credit costs will decline in line with a lower nonperforming loans (NPL) formation rate," Moody's add.

Also, Moody's said that funding and liquidity remain the strongest parts of their credit profiles, as reflected in the high share of retail deposits and low cost of funding.

Moody's continues to assume a very high level of government support in their ratings, leading to an unchanged three notch uplift in their deposit ratings. These four banks rank among the seven biggest banks in India, with deposit market shares ranging between 6-7%. Their systemic importance is further enhanced by the strong links to the government.

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