Bajaj Finance, Axis Bank decline 5% after S&P downgrades ratings

S&P Global Ratings said that worsening operating conditions following Covid-19 have increased risks for financial institutions and banks operating in India

Shares of Bajaj Finance and Axis Bank slumped 5 per cent each on the National Stock Exchange (NSE) to Rs 2,770 and Rs 404, respectively, on Monday, after S&P Global Ratings downgraded its ratings on the two companies to BB+, which is junk or non-investment grade.

“In our base case, we believe Bajaj Finance’s asset quality and credit costs will deteriorate over the next 12 months. We lowered our ratings on Axis to reflect our expectation that heightened economic risks facing India's banking system will affect the bank's asset quality and financial performance,” S&P said.

In the past one month, Bajaj Finance's stock had rallied 59 per cent, while Axis Bank gained 25 per cent, against 6 per cent rise in the Nifty 50 index, till Friday.

Moreover, the global rating agency in a release said that it believes worsening operating conditions following Covid-19 have increased risks for financial institutions and banks operating in India. It expects the Indian economy to fall into recession in the current fiscal year and to hurt the financial sector.

The rating agency anticipates Indian banks' asset quality will deteriorate, credit costs will rise, and profitability will decline over the next 12 months. CLICK HERE TO READ FULL REPORT

“We expect the asset quality of Indian finance companies to deteriorate, credit costs to rise, and profitability to decline over the next 12 months. Given the large acceptance of moratorium by borrowers, funding and liquidity problems could worsen for these companies,” it said. CLICK HERE TO READ FULL REPORT

S&P Global Ratings lowered its ratings on four nonbank finance companies (NBFCs), which include Shriram Transport Finance Company (STFC), Bajaj Finance, Manappuram Finance, and Power Finance Corp. It affirmed ratings on Muthoot Finance and Hero FinCorp, while placed ratings on STFC on credit watch with negative implications. The outlook on Muthoot is negative, while it is stable for the other NBFCs, it said.

At 10:02 am, Nifty Bank, Nifty Private Bank, Nifty PSU Bank and Nifty Financial Services were down in the range of 2 per cent to 3 per cent on the NSE. In comparison, the benchmark index was down 1.34 per cent at 10,244 points.

Besides, RBL Bank, IndusInd Bank, Bandhan Bank, Bank of Baroda, Cholamandalam Investment and Finance Company, IDFC First Bank, Uco Bank, Jammu & Kashmir Bank, Union Bank of India and Indian Bank dipped more than 3 per cent on the NSE.