ICICI Bank's Rs 15,000 cr equity raise is credit positive: Moody's

Private sector lender ICICI Bank’s Rs 15,000 crore equity raise will strengthen the lender's capital position and is credit positive, says rating agency Moody’s.

It was an important development since the ongoing economic slowdown, exacerbated by the disruptions from the coronavirus outbreak, will have a negative effect on the bank's asset quality and pressure profitability and capital, it added.

The fresh capital raise will add in 170 basis points to the consolidated Common Equity Tier-1 (CET1) ratio from 13.4 per cent at the end of June 2020, after including profit for the June quarter.

Last week, ICICI Bank raised Rs 15,000 crore ($2 billion) in equity capital by completing the allotment of shares under its qualified institutional placement (QIP).

In addition to this equity raise, the bank raised additional capital through a part sale of its subsidiaries. In June 2020, it sold a 1.50 percentage-point stake in ICICI Prudential Life Insurance and a 3.96 percentage-point stake in ICICI General Life Insurance, raising Rs 3,090 crore in all. The bank retains majority ownership in both entities.

The bank has also been making forward-looking credit provisions for potential asset-quality stress driven by the coronavirus driven economic disruption. Such provisions now amount to 1.3 per cent of loans, which is among the highest within rated Indian banks.

"Although the countrywide lockdown in India has been lifted, economic activity is still subdued, and daily infections of coronavirus remain high. As a result of these disruptions, we estimate that India’s economy is expected to contract (shrink) by four per cent in the current financial year," Moody’s added.

This will be the weakest economic performance in the past four decades and will have a significant near-term effect on the cash flow of bank borrowers and, consequently, their ability to repay loans.