S&P downgrades Axis Bank’s issuer rating over risks to Indian banking

Rating agency Standard and Poor’s has downgraded issuer rating for from “BBB-“ to “BB+” on expectations that heightened economic risks facing India’s banking system will affect the lender’s asset quality and financial performance.

At the same time, it placed ratings on public sector lender Indian Bank (BBB-) on CreditWatch with negative implications. 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, S&P said in a statement.

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Affirming the ratings on 7 other Indian banks, the rating agency said that it expected a very high likelihood of government support underpinning its ratings on government-owned

While Axis’ asset quality is superior to the Indian 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 capitalisation”, the rating agency said.

The stable outlook reflects the view that ratings on already factor in some deterioration in the bank’s asset quality and performance over the next 12 months, it said.

The risks stemming from challenging operating conditions following Covid-19 have increased for Indian “We now expect the Indian economy to fall into recession in the current fiscal year”, S&P said.

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It said asset quality will deteriorate, credit costs will rise, and profitability will decline over the next 12 months. As a consequence, rating agency revised banking industry country risk assessment (BICRA) for India to group ‘6 ‘from group ‘5’. It assessed the economic risk trend as stable.

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