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The 7-year senior loan will go towards IndusInd Bank’s micro-finance activities. Photo: HT
The 7-year senior loan will go towards IndusInd Bank’s micro-finance activities. Photo: HT

Moody's places IndusInd Bank's issuer ratings on review for downgrade

  • It said that the review for downgrade reflects the downside risks to asset quality amid the deteriorating macroenvironment and financial market volatility

MUMBAI : Moody's places IndusInd Bank's issuer ratings on review for downgrade

Shayan Ghosh


Mumbai


Moody's Investors Service on Friday said it has placed IndusInd Bank Ltd’s domestic and foreign currency issuer ratings under review for downgrade, citing risks to asset quality. The bank's baseline credit assessment (BCA) and adjusted BCA have also been placed under review for downgrade, it said.


It said that the review for downgrade reflects the downside risks to asset quality amid the deteriorating macroenvironment and financial market volatility.


“The bank's loan portfolio includes a relatively higher proportion of micro finance and vehicle finance loans than its peers, which are at high risk of being negatively impacted by the economic shock as customers in these segments tend to have limited buffers to withstand economic stress," it said.


The rating agency said that IndusInd Bank’s funding is weak when compared to other rated Indian banks, as reflected by its high deposit concentration and low share of retail deposits.


“This weaker funding makes the bank more susceptible to the dislocations in the financial markets, including on wholesale funding sources," it said.


Given the review for downgrade, Moody's said it is unlikely to upgrade IndusInd Bank’s ratings over the next 12-18 months. However, it said it could confirm the ratings if high-quality retail deposits continue to grow at around the same rate as they were till the end of December 2019 and leading indicators of asset quality remain stable.


But, IndusInd's baseline credit assessment (BCA) could be downgraded if there is no meaningful improvement in growth in stable sources of funding, asset quality weakens, and there is a reduction in profitability at the pre-provision income (PPI) level. Moody’s said that IndusInd's final ratings could be downgraded if its BCA is downgraded or if the sovereign rating is

downgraded.


Meanwhile, the rating agency also revised its outlooks for ICICI Bank and Axis Bank to negative from stable, and for IDBI Bank to stable from positive. It also downgraded the counterparty risk assessments of Axis Bank and ICICI Bank. However, it has affirmed the deposit ratings of ICICI Bank, Axis Bank and IDBI Bank.


On Thursday, Moody’s had revised the outlook for the Indian banking system to negative from stable, citing disruptions in economic activity caused by the covid-19 outbreak and an ensuing deterioration in asset quality. It had said that asset quality will deteriorate across the corporate, small and medium enterprises (SME) and retail segments, leading to pressure on profitability and capital for lenders.

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