Moody's upgrades IndusInd to 'stable' outlook, affirms long-term ratings

The lender's asset quality slipped marginally in the economic disruption caused by the Covid-19 pandemic, says agency.

Moody's has upgraded its outlook for Indusind Bank from "negative" to "stable", citing the Indian private lender’s improvement in funding and capital. The bank’s asset quality slipped marginally in the economic disruption caused by the Covid-19 pandemic.

The rating agency affirmed the long-term local and foreign currency deposit ratings of IndusInd Bank at Ba1 and its baseline credit assessment (BCA) and adjusted BCA at ba2.

The affirmation of the BCA and the deposit ratings factors in the bank's strong capital and core profitability, as well as a relatively modest funding.

Despite the economic disruption asset quality deterioration was moderate. This is even after including those benefiting from the Supreme Court order on loan classification with Gross Non Performing Loans ( NPL) at 2.93 per cent in December 2020 ( 2.18 per cent in December 2019).

The net NPL was at 0.22 per cent in December 2020, compared with 1.05 per cent a year earlier.

The bank raised capital, resulting in a significant increase in the core equity Tier 1 ratio to around 15 per cent in December 2020 from 12.1 per cent at the end of 2019.

Profits declined because credit costs increased, but pre-provision remains one of the highest within rated Indian banks. Profitability will gradually improve as credit costs normalize in 2021, Moody's said.

Funding quality has been improving over the past 12 months, with the share of retail deposits in total funding increasing to 27 per ceny at end December 2020 from 24 per cent at end March 2020.

"With management prioritizing improving funding mix over loan growth, we expect further improvement over the next 12-18 months. However, IndusInd's funding quality remains weaker than other large rated Indian private sector banks".

Liquidity remains stable, with liquidity coverage ratio of 156 per cent at end December 2020.