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S&P Global Ratings today revised its rating outlook on six Indian banks, including State Bank of India and HDFC Bank, from “stable” to “positive.” This follows a similar action on India's sovereign (BBB-/Positive). India's robust economic expansion is having a constructive impact on the sovereign's credit metrics.
These six banks are Axis Bank, ICICI Bank, State Bank of India, HDFC Bank Ltd., Kotak Mahindra Bank, and Indian Bank. The rating agency also affirmed the issue ratings on the banks. At the same time, it revised upwards the assessment of the stand-alone credit profile (SACP) of Axis Bank and ICICI Bank by one notch each.
The ratings on many Indian banks are capped by our sovereign credit ratings on India. This is due to the direct and indirect influence that a sovereign has on banks operating in the country. It affirmed our 'BBB-/A-3' issuer credit ratings on these banks.
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The rating agency said in a statement that India's banking system continues to ride the good economic growth momentum, well supported by recent structural improvements in the system. Indian financial institutions' resilience has therefore built up. “We expect India's banks to maintain their strong financial performance over the next 12-24 months,” it added.
Some of the factors benefiting the sovereign's creditworthiness will also have a positive impact on operating conditions for banks. In particular, India's infrastructure spending will likely pave the way for robust economic growth in the long term. India's good economic growth prospects will continue to support the asset quality of banks. Supportive structural and cyclical factors provide added benefits.
“We project the banking sector's weak loans (including standard restructured advances) will decline to about 3.0 per cent of gross loans by March 31, 2025, from our estimate of 3.5 per cent as of March 31, 2024. This is on the back of healthy corporate balance sheets, tighter underwriting standards, and improved risk-management practices,” S&P said.
The underwriting standards for retail loans in India are healthy, and delinquencies in this segment remain manageable. However, unsecured personal loans have grown rapidly and could contribute to incremental non-performing loans, it added.
