Global rating agency Moody’s Investors Service has called ICICI Bank’s fund-raising a positive move, which will boost the lender’s capital position.
“This is an important development because the ongoing economic slowdown exacerbated by the disruptions from the coronavirus outbreak will have a negative effect on the bank’s asset quality and pressure profitability and capital,” it said in a statement on Thursday.
ICICI Bank raised ₹15,000 crore through a qualified institutional placement (QIP) last week. Prior to that, it had also raised ₹3,036 crore through a 4 per cent stake-sale in ICICI Lombard General Insurance and 1.5 per cent stake-sale in ICICI Prudential Life Insurance.
“The bank has also been making forward-looking credit provisions for potential asset-quality stress driven by the coronavirus economic disruption,” Moody’s said, adding that such provisions now amount to 1.3 per cent of loans, which is among the highest within rated Indian banks.
Noting that the enhanced capital buffers will support ICICI Bank’s credit profile in the current economic uncertainty, Moody’s said that the downturn is likely to impact loan segments of retail and small and medium-sized enterprises.
“As is the case with other rated private sector banks, ICICI has a large exposure to retail loans which account for 63 per cent of its loan book, including agriculture loans, a key risk,” it cautioned.
It however, noted that the bank’s core profitability buffer remains strong with pre-provision income (adjusted for one-off gains) for the quarter ending June 2020 at 2.5 per cent. The bank also has profitable stakes in its subsidiaries, most notably in insurance companies, which can be liquidated, it further said.