Ind-Ra revises IndusInd Bank's outlook to negative, affirms AA-plus

India Ratings and Research (Ind-Ra) has revised IndusInd Bank Ltd's (IBL's) outlook to negative from stable while affirming the long-term issuer rating at AA-plus.

The agency has also affirmed the short-term issuer rating at A1-plus. The instrument-wise rating actions are AA-plus with negative outlook for senior unsecured redeemable bonds worth Rs 2,000 crore and AA with negative outlook for additional tier one bonds worth Rs 4,000 crore.

Ind-Ra said the outlook revision factors in the possible greater challenges for IBL than that for its peers regarding its deposit base because of its above-average dependence on institutional deposits and funding.

This can lead to the bank accessing other avenues of funding such as borrowings and capital market instruments amid the challenging operating environment (COVID-19 led lockdown).

The negative outlook also factors in the agency's opinion that the bank can witness higher asset quality pressures than in the past in view of its asset mix due to the current lockdown.

While IBL has strong profitability and adequate capital buffers, the challenges faced on the valuation side can hinder its ability to raise further capital as and when required.

The rating affirmation reflects IBL's granular loan portfolio, diversified income profile, strong operating buffers, strong management team, leadership position in some asset classes and higher than peers' core capital levels which together provide the bank with the ability to absorb credit costs under Ind-Ra's stress tests.

IBL's top 20 depositor concentration though declined remains elevated (FY19: 24.31 per cent) and is higher than most peer banks'.

While the deposit outflows of 11 per cent in 4Q FY20 (almost 50 per cent of that that is Rs 9,000 crore because of a state government's directive to its entities to withdraw deposits held in private banks) have been partly replenished, the bank's deposit concentration could increase its reliance on non-deposit liabilities.

Also, the prevailing operating challenges can constrain its ability to build incremental deposits quickly if required. However, the bank has the ability to tap other avenues for liabilities with varying costs and tenors and it also carried excess statutory liquidity ratio of one billion dollars at March-end.

While the bank has a pool of corporate depositors that have often remained steady or moved in and out of the top 50 depositor list of the bank, significant deposit outflow will be a key negative rating sensitivity, said Ind-Ra.