Moody's assigns 'Ba3' rating to HDFC Bank's AT1 dollar-denominated bonds

Rating agency Moody's has assigned “Ba3” rating to country's largest private lender HDFC Bank's dollar-denominated Additional Tier 1 (AT1) capital bonds. This would be the bank's maiden AT1 bonds offering in the international market to raise debt capital.

Country's largest lender State Bank of India has already raised capital through AT1 bonds from global markets.

The bank’s total Capital Adequacy Ratio (CAR) stood at 19.1 per cent as on June 30, 2021 (18.9 per cent as on June 30, 2020). Its tier 1 capital stood at 17.9 per cent in June 2021 (17.5 per cent in June 2020). The Common Equity Tier 1 Capital ratio (CET1) was at 17.2% as of June 30, 2021. It has a very small pool of AT1 capital bonds at 0.5 per cent.

The Ba3 rating is three notches below Bank's baa3 Baseline Credit Assessment (BCA), reflecting the probability of impairment associated with non-cumulative coupon suspension. The rating also factors in the likelihood of high loss severity when the bank reaches the point of non-viability, Moody's said in a statement.

The principal and accrued but unpaid distribution on AT1 bonds would be written down, partially or in full, if common equity tier 1 (CET1) ratio is below 5.5 per cent before October 01, 2021. And that threshold would move to 6.12 per cent from and including October 01, 2021.

There are limited prospects for upward rating momentum over the next 12-18 months due to the negative outlook on both HDFC Bank's deposit rating (Baa3 negative) and India's sovereign rating (Baa3 negative).