Moody's on Wednesday said asset quality for ICICI Bank's corporate loans would remain under pressure even beyond March 2016 due to exposure to some big-ticket accounts with weak debt servicing ability.
The private sector lender had significant buffers to withstand a meaningful deterioration in asset quality, Moody's said.
The rating agency affirmed ratings for private lender's financial instruments, including local and foreign currency deposits, at "Baa3/P3" and senior unsecured medium-term note (MTN) programme at (P)Baa3. The outlook on all the long-term ratings, where applicable, is positive.
Referring to asset quality, Moody's said asset quality of the bank's corporate loans would remain under pressure, even beyond the quarter ending March 2016. The bank had a meaningful exposure to large companies, some of which show weak debt servicing metrics. These exposures represented the key source of risk for the bank's asset quality, it said.
ICICI Bank's non-performing loans (NPL) have increased over the past few quarters, with its gross NPL ratio standing at 4.21 per cent at end-2015 against 3.29 per cent at end-March 2015. The increase was particularly large in the quarter ended December 2015 as the bank recognised some accounts as NPLs, in response to the Reserve Bank of India's asset quality review.
Pointing to profitability, Moody's said ICICI Bank had seen significant improvement in its core operating profitability over the past few years.
Its pre-provision income (PPI)/average assets rose to 3.18 per cent for the year ended March 2015 from 1.91 per cent in FY09.
The increase in its core profitability was driven by structural improvement in its funding profile, as well as higher net interest margins and better cost-to-income ratios, Moody's said.
Even if NPLs increased sharply, the bank can rebuild its loan loss reserve levels over a reasonable period of time by providing for higher credit costs. Credit costs/PPI for the bank for the nine months to December 31, 2015, was 28 per cent, indicating that the bank had the capacity to support a much higher level of credit costs if required, it added.