Moodys affirms deposit ratings of ICICI Bank and Axis Bank

18 Jun 2022 , 09:51 AM

At the same time Moodys has upgraded both the banks baseline credit assessments (BCA) to baa3 from ba1 reflecting improvements in credit fundamentals, in particular asset quality. The outlook on ratings for both banks remains stable. Strong solvency metrics limit downside risks, and given the ratings are already at the same level as the sovereign, upgrades are unlikely. Moodys said that the asset quality of the two banks has seen a significant improvement, with both the gross and net non-performing loans (NPL) ratios declining. Credit costs have also reduced at the same time as provision coverage has increased. Lower credit costs have resulted in higher profitability. ICICI and Axis return on assets for the year ending March 2022 was 1.8% and 1.2% respectively, compared to an average of 0.8% and 0.4% respectively over the four years ending March 2020. ICICIs profitability has also benefited from rising net interest margins as the share of the low margin international business has come down in the last four years. ICICI and Axis have raised equity capital, resulting in significantly higher capital rations. The core equity tier 1 ratios of ICICI and Axis at end March 2022 were 17.6% and 15.2% respectively compared to 13.6% and 11.3% at end March 2019. However, the proposed acquisition by Axis of Citigroup Inc.s (Citi, A3 stable) India consumer assets will result in an approximately 230bps decline in capital at the bank. Axis is targeting March 2023 to close the acquisition. However, as Axis has good access to capital markets, we expect the bank to raise capital to maintain its current capital ratios,? the credit rating agency said in a statement. Funding and liquidity remain credit strengths of the banks, with both being majority funded by retail deposits. Liquidity coverage ratios of both the banks are comfortably above the regulatory minimums. ICICI Bank had reported total assets of Rs 14.1 trillion while Axis Bank had reported total assets of Rs 11.8 trillion as of 31 March 2022. Shares of ICICI Bank rose 1.43% to close at Rs 688.10 while that of Axis Bank advanced 0.03% to end at Rs 635.60 on the BSE yesterday. Powered by Capital Market – Live News