Ratings agency Moody?s Investor Services on Thursday affirmed the ratings and maintained a stable outlook on India?s three largest private banks ? Axis Bank, HDFC Bank and ICICI Bank.
Moody?s said in a report these banks? strong profitability and capital buffers will help sustain credit quality through the current business cycle. The report said it affirmed the ratings for the senior unsecured debt and local currency deposits of these three private sector banks at Baa2 with a ?stable? outlook.
However, the agency also sounded a warning saying the private lenders may ?experience a marginal weakness in their corporate exposures, due to the current slowdown in India?s economy?. Moody?s has also affirmed each bank?s D+ financial strength rating, which is equivalent to a baseline credit assessment (BCA) of baa3.
Compared with the public sector banks, the three banks will benefit from their exposures to the retail assets, thanks to well-developed retail franchises and products, the report said. Asset quality in the retail segment has not weakened despite the economic stresses due to tightened underwriting standards after the losses of the 2008 financial crisis.
?Growth for three banks has been driven by secured lending products like mortgages and auto loans, or mortgage-linked assets in the case of HDFC Bank. Domestic consumption in India is also stable, as employment has not weakened, despite weakness in the economy,? the report added.
Diversity in operations has led to the banks benefiting from lower stock of non-performing loans (NPLs) and restructured loans compared with public sector banks, the report observed. ?As of June 2013, the banks? NPL ratio ranged from 1.0% to 3.2%, compared with a weighted average for our rated banks of 3.8%. At the same time, restructured loans for Axis, HDFC and ICICI ranged from 0.2% to 2.1%, compared to a weighted average for our rated banks of 5.3%.?
The report also added Axis Bank, HDFC bank and ICICI Bank have benefited from their portfolio of larger corporate clients and better credit selection compared to public sector banks
The report, however, cautioned the banks on their exposure to the infrastructure segment as historically India?s corporate sector high levels of leverage and expects incremental weakness in corporate asset quality due to cyclical factors. ?Axis and ICICI have some exposure to infrastructure lending, although their exposures are at lower levels than for public sector banks. These exposures could generate negative surprises, as significant structural issues remain.?
