Concerned by the slowing economy as a result of the national lockdown, global rating agency Standard and Poor’s on Friday took rating action against private sector lenders Axis Bank and ICICI Bank as well as non-banking finance companies (NBFCs), including Shriram Transport Finance and Bajaj Finance.

S&P Global Ratings has revised the rating outlooks on Axis Bank and ICICI Bank to negative from stable.

“That’s because heightened economic risks facing India’s banking system may affect the creditworthiness of these banks. In our base case, other private sector peers such as HDFC Bank and Kotak Mahindra Bank have stronger asset quality and would be able to withstand the weakness in operating conditions,” it said in a statement.

It also affirmed the ratings on other banks and their outstanding issuances but revised downward its assessment of the Special Agriculture Credit Plans (SACP) of Indian Bank by one notch to ‘bb+’.

Meanwhile, it also lowered the ratings on five NBFCs including Shriram Transport Finance, Bajaj Finance, Mannapuram Finance, Muthoot Finance and Power Finance Corporation.

“Our rating actions reflect NBFCs facing increasing risks from challenging operating conditions stemming from the Covid-19 outbreak. In our view, the economic risk for Indian financial institutions is rising. Economic conditions have turned adverse due to the Covid-19 pandemic,” it said, adding that it also expects the overall impact on the NBFC sector to be more pronounced than on the banking sector, given some of them lend to weaker customers.

Also, NBFCs were already reeling under trust deficit in the system since the 2018 default of Infrastructure Leasing & Financial Services, it pointed out.

Finance companies also face accentuated liquidity risks, it said, adding that liquidity stress could be high for wholesale lenders with large exposure to property developers, or those without a strong parent, or companies with perceived weak governance.

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