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S&P upgrades Axis Bank's ratings to 'BBB-/A-3' on improving asset quality

The ratings agency predicts Axis Bank's weak loans could decline to 2.5 percent-3.0 percent of total customer loans by end-March 2023, from 3.7 percent as of March 31, 2022.

November 21, 2022 / 07:23 PM IST
(Representative image)

(Representative image)

 
 
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S&P Global Ratings on November 21 upgraded private lender Axis Bank's long-term issue rating on their senior unsecured notes to 'BBB-' from 'BB+' on improving asset quality.

It also raised its long-term and short-term issuer credit rating on the lender to 'BBB-/A-3' from 'BB+/B'. They kept outlook 'Stable' for the bank.

"Our upgrade reflects Axis Bank's good asset quality and our expectation that the bank will maintain that over the next one to two years. India's robust economic growth should support borrowers' creditworthiness," the ratings agency said in a press release.

On the stable outlook front, S&P Global said Axis Bank will maintain its strong market position in India's banking sector over the next two years. The bank's capitalization should stay comfortable, notwithstanding an expected decline from the acquisition of Citigroup Inc.'s retail portfolio in India.

The ratings agency predicts Axis Bank's weak loans, defined as nonperforming loans and standard restructured loans (including loans restructured due to COVID), could decline to 2.5 percent-3.0 percent of total customer loans by end-March 2023, from 3.7 percent as of March 31, 2022.

COVID restructured loans have also fallen to 0.4 percent of total loans as of end-September 2022, from 0.6 percent as of Dec. 31, 2021. Credit costs could likely stay below 1 percent, while asset quality risks remain contained.

The higher interest rates and high inflation usually painful for small and midsize enterprise sector and low-income households. However, in their base case of moderate interest-rate hikes, these risks are manageable for Axis Bank, the agency added.

"The bank's ample provisioning and capital buffers can help absorb a moderate rise in credit stress. The bank's tighter risk management should also support credit quality. Axis Bank's 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," they said.

The agency had warned that they may lower the ratings on Axis Bank if the bank's asset quality deteriorates sharply. This could happen if economic conditions in India deteriorate, resulting in asset quality stress for the bank.

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 bank's financial profile as well as the sovereign credit rating on India, S&P said.

Earlier this year, the ratings agency had revised private lender's outlook from "stable" to "positive", citing improved asset quality.

While, it affirmed 'BB+' long-term and 'B' short-term issuer credit ratings on the bank under revised criteria.
Moneycontrol News
first published: Nov 21, 2022 07:21 pm