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Global rating agency Moody’s, on Friday, placed private sector lender IndusInd Bank’s domestic and foreign currency issuer ratings of Baa3/P-3 under review for downgrade. It has also placed the bank’s ba1 baseline credit assessment (BCA) and adjusted under review for downgrade.
“The review for downgrade of IndusInd’s ratings reflects the downside risks to asset quality amid the deteriorating macro environment and financial market volatility,” it said in a statement, adding that the bank’s loan portfolio includes a relatively higher proportion of micro finance and vehicle finance loans than its peers, which are at high risk of being negatively impacted by the economic shock.
‘Upgrade unlikely soon’
“IndusInd’s funding is weak when compared to other rated Indian banks,” Moody’s further said, adding that given the review for downgrade, it is unlikely to upgrade the ratings over the next 12 to 18 months.
While there have been increasing concerns over IndusInd Bank’s asset qualities among investors, the rating action by Moody’s is part of the agency’s action on four Indian financial institutions, including ICICI Bank, Axis Bank and IDBI Bank, by Moody’s.
It has revised the outlook for ICICI Bank and Axis Bank to negative from stable and for IDBI Bank to stable from positive.
“The rapid and widening spread of the coronavirus outbreak deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets,” it said, adding that the Indian financial system has been one of the sectors affected by the shock, especially given the already weakening operating environment.
Moody’s has affirmed the BCA and adjusted BCA of ICICI Bank and Axis Bank at ba1. The BCA and adjusted BCA of IDBI has also been affirmed at b2. It has also affirmed the deposit ratings of ICICI Bank, Axis Bank and of IDBI Bank. It has, however, downgraded the counterparty risk assessments of Axis and ICICI Bank and also their local currency counterparty risk rating.
It said it expects the economic shock from the national lockdown to exacerbate, exerting negative pressure on asset quality from the already deteriorating operating environment prior to the outbreak.
For ICICI Bank and Axis Bank, it expects deterioration in the asset quality of loans to small- and medium-sized enterprises as well as that of unsecured loans on the retail side.