Moody’s confirms the rating of ICICI Bank and Axis Bank deposits
Moody’s Investors Service affirmed Baa3 filing ratings for ICICI Bank and Axis Bank.
At the same time, Moody’s raised the base credit ratings (BCAs) of both banks from baa3 to ba1, reflecting improving credit fundamentals, particularly asset quality.
The outlook for the ratings of both banks remains stable. Strong solvency metrics limit downside risks, and given that ratings are already at the same level as the sovereign, upgrades are unlikely.
Moody’s said the quality of both banks’ assets has improved significantly as gross and net non-performing loan (NPL) ratios have declined. Credit costs have also declined as provision coverage has increased. Lower credit costs translated into improved profitability.
Return on assets for ICICI and Axis for the year ending March 2022 were 1.8% and 1.2% respectively, compared to an average of 0.8% and 0.4% respectively over the four years ending March 2020.
ICICI’s profitability has also benefited from higher net interest margins, as the share of low-margin international business has declined over the past four years.
ICICI and Axis raised equity, which resulted in significantly higher capital rations. The core equity Tier 1 ratios of ICICI and Axis at the end of March 2022 were respectively 17.6% and 15.2% compared to 13.6% and 11.3% at the end of March 2019.
However, Axis’ proposed acquisition of the Indian consumer assets of Citigroup Inc. (Citi, A3 stable) will result in a roughly 230 basis point drop in the bank’s capital. Axis is targeting March 2023 to complete the acquisition.
“However, as Axis has good access to capital markets, we expect the bank to raise capital to maintain its current capital ratios,” the rating agency said in a statement.
Funding and liquidity remain banks’ credit strengths, both being mostly funded by retail deposits. Both banks’ liquidity coverage ratios are well above regulatory minimums.
ICICI Bank had reported total assets of Rs 14.1 trillion while Axis Bank had reported total assets of Rs 11.8 trillion as of March 31, 2022.
Shares of ICICI Bank rose 1.43% to close at Rs 688.10 while those of Axis Bank rose 0.03% to end at Rs 635.60 on BSE yesterday .
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