Moody's affirms ratings for Axis, ICICI and HDFC Bank

Says strong profitability, capital buffers will help the banks sustain credit quality

Global rating agency Moody’s said on Thursday that strong profitability and capital buffers will help Axis Bank, HDFC Bank and ICICI Bank sustain credit quality through the current business cycle.

The rating agency affirmed its ratings for the senior unsecured debt and local currency deposits of these three private sector banks at Baa2 with a ‘stable’ outlook.

Moody’s decision to affirm the ratings reflects the banks’ “relatively strong asset quality, which benefits from diversification into the retail sector”, it said in a statement.

However, the rating agency sounded a word of caution on pressure, saying these banks may experience marginal weakness in their corporate exposures owing to the current slowdown in India's economy.

Moody's also affirmed each bank's D+ financial strength rating, which is equivalent to a baseline credit assessment (BCA) of Baa3.

In contrast to most public sector banks, the three banks benefit from significant exposures to retail assets thanks to their well-developed retail franchises and product offerings, Moody’s noted.

Asset quality in the retail segment has not weakened during the recent economic stresses since the banks tightened underwriting standards after losses during 2008-10, the rating agency observed.

“Growth for the 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 statement added.

Diversity in the operations of the three banks has led to their benefiting from a lower stock of non-performing loans (NPL) and restructured loans compared to public sector banks.

“As of June 2013, the banks’ NPL ratios ranged from one per cent to 3.2 per cent, compared to a weighted average for our rated banks of 3.8 per cent,” Moody’s said in the statement. It added that the three banks’ restructured loans ranged from 0.2 per cent to 2.1 per cent, compared to Moody’s rated banks’ weighted average of 5.3 per cent.  The restructured loans of the three banks were spread across a wider range of sectors than those of the public sector banks, Moody’s noted.