Moody's cuts IndusInd Bank's outlook to negative over asset deterioration

While there have been no NPLs in real estate segment so far, the exposure to the property market remains a source of risk, given the broader stress in the realty sector

Moody’s has revised the outlook on IndusInd Bank’s instrument to “negative” from “stable”. This is to account for the risk of further asset quality deterioration. However, it affirmed ratings on foreign and domestic currency deposits, on the back of a strong capital base.

Over the last few quarters, the lender has seen deterioration in its asset quality, particularly in the corporate segment. The major reason for crystallisation of non-performing loans (NPLs) was the tightening of refinancing conditions for borrowers, Moody’s said in a statement.

In particular, the bank has a relatively higher exposure to real estate, as compared to other banks (8 per cent of its loan book as of December 31).

While there have been no NPLs in this segment (real estate) so far, the exposure to the property market remains a source of risk, given the broader stress in the realty sector. The bank could also be hit by the ongoing stress in the telecom sector, Moody’s added.

The bank’s domestic and foreign currency issuer ratings have been affirmed at Baa3/P-3. The agency also affirmed domestic and foreign currency bank deposit ratings at Baa3/P-3. This was driven by the bank’s strong buffers — both capital and profitability — which reflect its strong ability to absorb asset quality stress.

Core equity tier-1 ratio at December 31, 2019 — after factoring in profits for the nine months ended December 2019 — stood at 13.6 per cent.

Capital will be further boosted by around 80 basis points if the promoter shareholder group exercises its outstanding warrants. Consequently, capital will remain a key credit strength.