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Global ratings agency Moody’s Investors Service affirmed the ratings of three large private banks — ICICI Bank, HDFC Bank and Axis Bank — but warned that they expect these banks to experience marginal weakness in their corporate exposures due to the ongoing slowdown in the economy.
Though strong profitability and capital buffers will help the three banks sustain credit quality through the current business cycle, Moody’s added in its statement.
The rating agency affirmed its ratings for the senior unsecured debt and local currency deposits of these three private sector banks at Baa2 with a ‘stable’ outlook.
Moody’s decision to affirm the ratings reflects the banks’ “relatively strong asset quality, which benefits from diversification into the retail sector”, it said.
“Asset quality in the retail segment has not weakened during the recent economic stresses since Axis Bank, HDFC Bank and ICICI Bank tightened underwriting standards after losses during 2008-10,’’ it noted.
Moody’s also pointed out that they have sufficient cushion to absorb higher credit costs if their asset quality weakens and they can generate sufficient internal capital to sustain the current levels of capitalisation.
Diversity in operations
The diversity in operations of the three banks has resulted in lower stock of bad loans and restructured loans compared to public sector banks.
As of June 2013, the ratio of bad loans for these three private banks ranged from 1 per cent to 3.2 per cent compared to a weighted average of 3.8 per cent for other rated banks.
Also, restructured loans for the three private lenders ranged from 0.2 per cent to 2.1 per cent compared to a weighted average of 5.3 per cent for the banks rated by Moody’s.
In addition, the restructured loans for the three banks were spread across a wider range of sectors than those of public banks.
Moody’s also said that unlike public sector banks, Axis Bank, HDFC Bank and ICICI Bank have had better credit selection and monitoring of their exposures to mid-sized corporates. They also have better asset quality experience compared to public sector banks.
Shares of Axis Bank and HDFC Bank were trading down by 2 per cent and 1 per cent, respectively, while the shares of ICICI Bank were trading marginally up at 0.5 per cent on the Bombay Stock Exchange.
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