Moodys puts IndusInd Banks issuer ratings on review for downgrade

Ross Houston
April 4, 2020

It added in a statement that the switch to a negative outlook was as a result of "the high levels of uncertainty over the 2020 race season and Moody's expectations of increased leverage and weakened liquidity in 2020".

Moody's Investors Service on Thursday changed the outlook for Indian banking system to negative from stable, as it expects deterioration in banks' asset quality due to disruption in economic activity from the coronavirus outbreak.

The BCA and adjusted BCA of ICICI and Axis are affirmed at ba1. The move was driven by a potential deterioration in asset quality resulting from coronavirus related disruptions. "Disruptions to economic activity from the coronavirus outbreak will exacerbate a slowdown in India's economic growth", Moody's said.

ICICI Bank and Axis Bank may stand to suffer due to their exposures to the small and medium enterprises, given the fact that such businesses have limited liquidity buffers to withstand difficulties, it said.

"The Indian financial system has been one of the sectors affected by the shock, especially given the already weakening operating environment".

Although banks' internal capital generation will decline as earnings are eroded, this will stabilise their capital ratios as weaker loan growth will limit the expansion of their risk-weighted assets.

With asset quality at risk, Moody's said that Philippine banks' credit costs would escalate, potentially dragging the sector's bottom-line figures in the process. Both also have high core profitability, providing them with capacity to absorb higher credit costs, said Moody's.

"Banks will maintain strong loss-absorption buffers, and this will help mitigate increasing asset risks".

Moody's said while the funding and liquidity at the public sector banks (PSBs) will be stable, the growing risk aversion in the system following the Yes Bank's default will increase funding and liquidity pressure on small private sector lenders.

It also noted that IDBI Bank's funding profile has improved significantly, with the proportion of funding from retail deposits significantly increase, and bulk deposits coming down from 33 percent in March 2018 to 17 percent as of December 2019, bringing some comfort.

"However, any material downgrade of credit ratings of borrowers would increase the capital that banks need to set aside for those exposures, which would erode capitalization", the debt watcher added.

The firm said the banks' loan-to-deposit ratios would be stable as deposit and loan growth would broadly match.

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