Asset quality of Export-Import (Exim) Bank of India has deteriorated in the last one year, but the company is still well placed to absorb the stress as a large number of its loans are backed by government and are structurally safe, ratings agency Moody's said Tuesday.
"As is the case of other Indian banks with corporate exposures, Exim India has seen increasing pressure on the quality of its loan book over the last 12-18 months," Srikanth Vadlamani, a Moody's vice president and senior analyst, said in a report.
"However, there are a number of factors that we believe have contained the impact on Exim's credit profile from these asset quality pressures, which led us to maintain our ba2 baseline credit assessment on Exim India," said Vadlamani.
In the report titled, "Exim India Well Placed to Absorb Asset Quality Stress," Moody's pointed out that a large portion of Exim India's loan book (45 percent) consists of a mix of loans to foreign governments that are backed by an explicit guarantee from the Government of India and loans to other banks in India, the majority of which is implicitly supported by the government.
"As such, much of its loan book is structurally immune to typical commercial credit-cost risks."
Diversification and strong loss-absorbing buffers will contain the risks associated with corporate loans, it said.
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"The broad diversification characterising the corporate side of the loan book will help avoid any dramatic decline in asset quality and in Exim India's strong buffers against downside scenarios," said Vadlamani.
The bank also benefits from a reasonably high net interest margin when adjusted for the underlying credit risk.
Moody's affirmed the Baa3 rating of Exim India's deposits and long-term senior unsecured debt with a stable outlook.