Mumbai: S&P Global Ratings on Friday said it lowered its ratings on Axis Bank and Bajaj Finance to junk, reflecting the ratings agency’s view that economic risks have increased for banks and financial institutions operating in India.
The ratings agency downgraded Axis Bank’s issuer credit rating to BB+/stable/B from BBB-/negative/A-3 earlier. It also downgraded the bank’s Dubai International Financial Centre branch, GIFT city branch and Hong Kong branches’ ratings to BB+ from BBB- earlier.
When a bond’s rating drops into the double-B category, it falls into the junk bond territory.
“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 a release.
“While Axis’ asset quality is superior to the Indian banking sector average, its level of non-performing assets (NPAs) will likely remain high compared to international peers’. Nevertheless, we expect the bank to maintain its strong market position and adequate capitalization,” it added.
S&P downgraded Bajaj Finance’s issuer credit rating to BB+/stable/B from BBB-/negative/A-3 earlier. It also cut Shriram Transport Finance’s issuer credit rating to BB-/watch negative/B from BB/negative/B, and senior secured rating to BB-/watch negative from BB earlier.
It also placed its ratings on Indian Bank on CreditWatch because we see a high risk that the public sector bank’s credit profile could weaken over the coming quarters due to Covid-19, as well as the merger with the weaker Allahabad Bank.
At the same time, S&P affirmed the ratings on the seven other banks it rates in India.
“We believe risks stemming from challenging operating conditions following Covid-19 have increased for Indian banks. We now expect the Indian economy to fall into recession in the current fiscal year,” S&P said.
“We anticipate Indian banks’ asset quality will deteriorate, credit costs will rise, and profitability will decline over the next 12 months,” the ratings agency said adding that it has revised its banking industry country risk assessment (BICRA) for India to group ‘6 ‘from group ‘5’.
“We assess the economic risk trend as stable,” it added.
S&P said it affirmed the ratings on HDFC Bank to reflect the bank’s strong business franchise, low credit costs and better funding and liquidity profile than industry peers.
The ratings agency also affirmed the ratings of ICICI Bank, IDBI Bank, Kotak Mahindra Bank, State Bank of India and Union Bank of India.
The ratings agency also lowered the ratings of Manappuram Finance, Power Finance Corp, and affirmed those of Hero FinCorp and Muthoot Finance.