Moody's takes rating actions on four Indian financial institutions

Moody's Investors Service on Friday affirmed the deposit ratings of ICICI Bank and Axis Bank at Baa3, and of IDBI Bank at Ba2.

It also placed IndusInd Bank's domestic and foreign currency issuer ratings of Baa3/P-3 under review for downgrade. The bank's ba1 baseline credit assessment (BCA) and adjusted BCA have also been placed under review for downgrade.

The BCA and adjusted BCA of ICICI and Axis are affirmed at ba1. The BCA and adjusted BCA of IDBI has also been affirmed at b2.

At the same time, the outlooks for ICICI and Axis are revised to negative from stable, and for IDBI to stable from positive.

 

"The rapid and widening spread of the coronavirus outbreak deteriorating global economic outlook, falling oil prices and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets," said Moody's.

The Indian financial system has been one of the sectors affected by the shock, especially given the already weakening operating environment.

"We regard the coronavirus outbreak as a social risk under our environmental, social and governance (ESG) framework, given the substantial implications for public health and safety," said Moody's.

"Today's action reflects the impact on the four financial institutions listed above of the breadth and severity of the shock, and the deterioration in credit quality it may trigger," it said in a statement.

Moody's expects the economic shock, resulting from the nationwide lockdown will exacerbate existing negative pressure on asset quality from the already deteriorating operating environment prior to the outbreak.

The government announced a 21-day nationwide lockdown to slow the spread of the coronavirus on March 25.

Given the limited liquidity buffers small and medium-sized enterprises (SMEs) maintain Moody's expects the quality of loans to these segments by ICICI and Axis will deteriorate.

Additionally, the asset quality of retail loans, and in particular unsecured retail loans will deteriorate as borrowers' incomes are lost or reduced during the lockdown.

Large corporates are also not immune from the outbreak, with the outbreak having the potential to reverse the improving trend in credit metrics.

For IDBI, the incremental impact on asset quality will be cushioned by its very low new business origination over the last few years. However, its weaker underwriting increases asset quality risks in this environment.