S&P Global Ratings upgrades Axis Bank to BBB-/A-3 on improving asset quality

22 Nov 2022 , 11:50 AM

The agency has also raised the long-term issue rating on the banks senior unsecured notes to BBB- from BB+. S&P Global Ratings said that its upgrade reflects Axis Banks good asset quality and the agencys expectation that the bank will maintain that over the next one to two years. It forecasts that Axis Banks weak loans could decline to 2.5%-3.0% of total customer loans by end-March 2023, from 3.7% as of 31 March 2022. Credit costs could likely stay below 1% while asset quality risks remain contained. In S&P Globals view, Axis Bank can absorb the impact of higher inflation and interest rates. The small and midsize enterprise sector and low-income households are vulnerable to rising interest rates and high inflation. However, in the agencys base case of moderate interest-rate hikes, these risks are manageable for Axis Bank. The banks ample provisioning and capital buffers can help absorb a moderate rise in credit stress. The banks tighter risk management should also support credit quality. Axis Banks asset quality is likely to stay better than the Indian sector average and comparable to that of similar rated international peers over the next two years. This follows gradual improvements in recent years with a resolution and recovery of legacy weak loans. The stable outlook on Axis Bank reflects the agencys view that the bank will maintain its strong market position in Indias banking sector over the next two years. The banks capitalization should stay comfortable, notwithstanding an expected decline from the acquisition of Citigroup Inc.s retail portfolio in India. Steady growth in Axis Banks retail deposit base as well as good access to capital markets should support its funding profile. S&P Global said that it may lower the ratings on Axis Bank if the banks asset quality deteriorates sharply. This could happen if economic conditions in India deteriorate, resulting in asset quality stress for the bank. However, an upgrade of Axis Bank is unlikely over the next one to two years. This is because an upgrade will require an improvement in the banks financial profile as well as the sovereign credit rating on India. Axis Bank is the third-largest private sector bank in India. The banks net profit soared 70% to Rs 5,329.77 crore on 20% increase in total income to Rs 24,180.08 crore in Q2 FY23 over Q2 FY22. Net interest income (NII) increased by 31% YoY and 10% QoQ to Rs 10,360 crore. Net interest margin (NIM) for Q2 FY23 stood at 3.96%, up 57 basis points YoY and 36 basis points QoQ. The scrip rose 0.15% to currently trade at Rs 871 on the BSE. Powered by Capital Market – Live News