Now, ICICI and Axis Bank get ratings thumbs-up

After SBI cut, Moody’s and Fitch retain ratings for the two pvt sector banks.

ICICI Bank and Axis Bank’s financial positions on Wednesday received the thumbs-up from rating agencies Moody’s and Fitch, respectively. Their ratings were retained, a day after the country’s largest bank, State Bank of India, was downgraded by Moody’s.

“Moody’s believes the probability of systemic support for ICICI Bank is high, given its sizeable retail deposit franchise, as well as its importance to the national payment system as the second-largest commercial bank,” the agency said.

ICICI Bank, the country’s largest private sector bank, got the rating because of a robust franchise and capitalisation. Fitch affirmed Axis Bank’s long-term foreign currency issuer default rating at ‘BBB-’ with a stable outlook. The rating reflects the bank’s strong franchise and its sound profitability and asset quality. The reiteration of a financial strength rating of ‘C-’ for ICICI Bank came a day after Moody’s downgraded SBI from ‘C-’ to ‘D+’ on account of the public sector lender’s deteriorating asset quality and rising non-performing assets (NPAs).

A ‘D’ rating suggests “modest intrinsic financial strength, potentially requiring some outside support at times”, while a ‘C’ rating denotes “adequate intrinsic financial strength”.

On the SBI downgrade, chairman Pratip Chaudhuri said the bank had already given an analysis of the downgrade action to the finance ministry. “The downgrade applies to the perpetual debt, which was raised in 2007.

This, no longer, is considered in core capital under Basel-III norms. The bank is not likely to issue these instruments in the future,” he said. Chaudhuri said he was aware the stock price was at a two-year low, which was undesirable.

The ratings, which came in the last hour of trading on Wednesday, failed to enthuse a lacklustre stock market, as bank shares closed lower for the third session in row. BSE Bankex, the sectoral index tracking movement banking shares, fell 2.5 per to close at 9,961.5. The index is down 8.2 per cent this month. SBI closed at Rs 1,715.30, down four per cent from the previous close. ICICI Bank too declined to Rs 778.95, down 2.72 per cent. Axis Bank closed lower by 0.74 per cent to Rs 952. Industry lobby Ficci reacted to the SBI downgrade, saying the agency had raised legitimate concerns over the outlook for the Indian banking sector. 

HOW THEY MEASURE UP Top 10 banks on the basis of net profit (June quarter)
	Net profit*	Gross NPA*	CAR Tier-1(%)	Rating#
SBI	1,583.55	27,768.28	7.60	D+
ICICI Bank	1,332.20	9,982.76	13.36	C-
PNB	1,105.07	4,893.62	8.51	D+
HDFC Bank	1,084.98	1,833.13	11.40	C-
Bank of Baroda	1,032.85	3,425.46	9.06	D+
Axis Bank	942.35	1,573.13	9.36	C-
Canara Bank	725.85	3,606.27	9.59	NA
Bank of India	517.53	5,791.01	8.02	D+
Union Bank (I)	464.42	3,745.10	8.82	NA
Allahabad Bank	418.13	1,604.37	8.55	NA
At present, the Reserve Bank has prescribed minimum CAR Tier-1 of six per cent. The government wants public sector banks to maintain at least eight per cent CAR Tier-1 NIM=Net interest margin; CAR=Capital adequacy ratio; * ' crore #Financial strength ratings by Moody’s Source: Capitaline                                                                                 Compiled by BS Research Bureau

“Given the situation of alarmingly rising NPA levels, uncertainty over ability to raise capital and infusion of capital by the government in the face of strained finances, the move could have far reaching implications for the banking sector as a whole. The mounting stress on NPAs gave reasons for some to call SBI Stressed Bank of India,” it said.

For the banking sector, though, things do not look very bright in the immediate future. Centrum Broking, in a preview of banking sector stocks, said the pressure on net interest margin (NIM) was expected to continue in Q2 FY12, led by upward re-pricing of term deposits, fuller impact of the savings rate hike and lower deployment pace.

The asset quality trends during the quarter are likely to be a mixed bag. Private banks are likely to maintain/improve slippages and public sector banks may see volatility in slippages as they complete the migration of NPL recognition to the core banking system, according to Centrum. After consolidating its business for two years to overcome difficult economic conditions and rising delinquency in consumer loans, ICICI Bank posted moderate asset growth of 12 per cent in 2010-11.