Global rating agency Standard and Poor’s, on Friday, lowered the ratings of private sector lender Axis Bank as it believes the economic risks for banks in India have increased.

“We lowered our ratings on Axis to reflect our expectation that heightened economic risks facing India’s banking system will affect the bank’s asset quality and financial performance,” S&P said in a release.

While Axis’ asset quality is superior to the Indian banking sector average, its level of nonperforming assets will likely remain high compared to that of international peers, it further said. “Nevertheless, we expect the bank to maintain its strong market position and adequate capitalisation,” it added.

It has downgraded its issuer credit ratings to BBB-/Negative/A-3 from BB+/Stable/B.

The agency has also placed the ratings of Indian Bank on Credit Watch because it expects the public sector bank’s credit profile to weaken over the coming quarters due to Covid-19 as well as the merger with the weaker Allahabad Bank.

S&P also affirmed the ratings on other banks it rates in India, including Bank of India, HDFC Bank, ICICI Bank, IDBI Bank, State Bank of India, Kotak Mahindra Bank and Union Bank.

With an expectation that the Indian economy will fall into recession in the current fiscal year, S&P said: “We anticipate Indian banks’ asset quality will deteriorate, credit costs will rise, and profitability will decline over the next 12 months.

It has also revised the banking industry country risk assessment (BICRA) for India to group 6 from group 5. “We assess the economic risk trend as stable,” it said.

Its ratings for public sector banks is underpinned by expectations of a government support to them. “We expect the government to provide capital support, even though it has not specifically allocated capital in the budget for fiscal 2021,” it noted.

Published on June 26, 2020

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