S&P Cuts Axis Bank, ICICI Bank Outlook, Says Covid-19 To Hurt Asset Quality Of Lenders
The Standard & Poor’s (S&P) logo is displayed at the company’s headquarters in New York, U.S. (Photographer: Scott Eells/Bloomberg)

S&P Cuts Axis Bank, ICICI Bank Outlook, Says Covid-19 To Hurt Asset Quality Of Lenders


Global ratings agency Standard & Poor’s has cut to “negative” its outlook on Axis Bank Ltd. and ICICI Bank Ltd., asserting that the Covid-19 pandemic will lead to deterioration in asset quality for Indian lenders.

While recovery in India’s economic growth will be U-shaped, the risks for the country’s banking sector remain on the downside, S&P said. The ratings agency also warned of a few downgrades because of the pandemic.

Global multilateral agencies, including the World Bank and the International Monetary Fund, have cut sharply India’s GDP growth for 2020-21 as a 40-day lockdown halted economic activity in a country of 1.3 billion people. The government and the Reserve Bank of India have announced measures to tide over the coronavirus crisis, but a recovery is seen likely only in the next fiscal year.

To be sure, Indian banks have had a rough ride since RBI started reviewing their asset quality in late 2014. Lenders at present are saddled with nearly Rs 10 lakh in toxic debt, and slower economic growth in the days leading up to the outbreak made recovery difficult.

“We expect Indian banks' asset quality to deteriorate, credit costs to rise, profitability to decline,” S&P said in a note, adding that it has revised the economic risk trend for the banking system to negative from stable earlier.

The outlooks on both Axis Bank and ICICI Bank have also been revised to "negative" from “stable”, largely due to impact of the coronavirus lockdown, but spared their peers such as HDFC Bank Ltd. and Kotak Mahindra Bank Ltd.

Ratings on both Axis Bank and ICICI Bank have been affirmed at the existing ones.

“The negative outlook on ICICI Bank reflects our view that the bank is exposed to economic headwinds faced by India's banking system,” S&P said. The private lender will maintain its strong market position and asset quality despite a deterioration, it said.

On Axis Bank, the ratings agency said, “The negative outlook on Axis Bank reflects our expectation that heightened economic risks facing India's banking system will likely affect the bank's asset quality and financial performance.” Axis Bank cannot get the government support that public sector banks enjoy, it said.

Also Read: RBI Offers Bad Loan Relief To Banks But With Caveats

S&P warned that it would downgrade both Axis Bank and ICICI Bank if stressed assets rise significantly beyond the system average over the next few quarters, and raise the outlook to stable if the economic risks in India abate.

In the case of HDFC Bank, the agency appreciated its strong business franchise, better liquidity profile, comfortable capitalisation supported by strong earnings and sector-leadind asset quality, and added that the rating is capped by the sovereign rating.

Kotak Mahindra Bank's robust capitalisation, strong management, and better-than-peers asset quality was also appreciated while affirming the ratings.

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