Tag: Moody's

Moody’s upgrades Yes Bank’s ratings, changes outlook to positive

Banking & Finance

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Moody’s Investors Service has upgraded Yes Bank’s ratings and changed its outlook to positive, reflecting its expectations of a further improvement in the lender’s credit profile due to clean-up of legacy stressed assets and improvements to its capital and profitability.

The rating agency has upgraded Yes Bank’s foreign currency issuer rating and long-term foreign and local currency bank deposit ratings to B2 from B3, it said on Wednesday.

Also see: Yes Bank launches co-branded card with BankBazaar.com

Further, it has also upgraded Yes Bank’s Baseline Credit Assessment (BCA) and Adjusted BCA to B3 from Caa2 and has changed the outlook on the bank’s ratings where applicable to positive from stable.

Liquidity improves

“Moody’s has upgraded Yes Bank’s issuer rating to B2 from B3 because its funding and liquidity have substantially improved in the past year, which have strengthened depositor and credit confidence in the bank,” it said, adding that the rating action also reflects the fact that despite the significant economic challenges since the onset of the pandemic, Yes Bank’s asset quality has deteriorated only modestly while its capital has remained stable.

Asset quality remains weak

It, however, noted that the private sector lender’s asset quality remains weak and continues to pose risks to its profitability and capital.

Given the positive outlook, Moody’s could upgrade Yes Bank’s ratings if the bank’s asset quality and/or capital materially improve. However, the agency could downgrade the bank’s ratings and BCA if its capital deteriorates significantly because of a strain on its asset quality, or if its funding and liquidity deteriorate.

Also see: Moody’s upgrades outlook for Indian banking system

For the quarter ended September 30, Yes Bank had reported a 74.3 per cent jump in its standalone net profit to ₹225.5 crore from a year ago.

Gross NPAs was at 14.97 per cent of gross advances as on September 30, 2021 versus 16.9 per cent a year ago.

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Banking system set for positive times ahead

Banking & Finance

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Things seem to be looking up for banks, going by the assessment of credit rating agencies (CRAs) Moody’s Investors Service and Crisil Ratings.

Moody’s has revised the outlook for the Indian banking system to “stable” from “negative” on the back of stabilising asset quality and improved capital drive.

Crisil Ratings said the rise in bank NPAs will be muted (at 8-9 per cent in FY22 against 7.5 per cent in FY21) due to various Covid-19 pandemic-related dispensations such as the restructuring dispensation, and the Emergency Credit Line Guarantee Scheme (ECLGS).

This is well below the peak of 11.2 per cent seen at the end of fiscal 2018.

In its banking system outlook for India, Moody’s observed that the deterioration of asset quality since the onset of the coronavirus pandemic has been moderate, and an improving operating environment will support asset quality.

Moody’s view

The global credit rating agency opined that declining credit costs as a result of improving asset quality will lead to improvements in profitability. It assessed that capital will remain above pre-pandemic levels.

Moody’s expects India’s economy to continue to recover in the next 12-18 months, with GDP growing 9.3 per cent in the fiscal year-ending March 2022 and 7.9 per cent in the following year.

The agency noted that the pick-up in economic activity will drive credit growth, which it expects to be 10-13 per cent annually.

Weak corporate financials and funding constraints at finance companies have been key negative factors for banks but these risks have receded.

According to Moody’s, the deterioration of asset quality since the onset of the pandemic has been more moderate than it expected despite relatively limited regulatory support for borrowers.

The agency said the quality of corporate loans has improved, indicating that banks have recognised and provisioned for all legacy problem loans in this segment.

“The quality of retail loans has deteriorated, but to a limited degree because large-scale job losses have not occurred. We expect asset quality will further improve, leading to decline in credit costs, as economic activity normalises,” Moody’s said.

Crisil outlook

Crisil Ratings said Covid-19 related relief measures will help limit the rise in NPAs.

While loans in the retail and MSME segments are expected to be the most impacted, corporate loans are seen to be far more resilient. The agriculture segment is expected to remain relatively stable.

With about 2 per cent of bank credit expected under restructuring by the end of this fiscal, Crisil assessed that stressed assets comprising gross NPAs and loan book under restructuring should touch 10-11 per cent (against March-end 2021 estimate of about 9 per cent).

Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, Crisil Ratings, said: “The retail and MSME segments, which together form about 40 per cent of bank credit, are expected to see higher accretion of NPAs and stressed assets this time around.

“Stressed assets in these segments are seen rising to 4-5 per cent (from 3 per cent last fiscal) and 17-18 per cent (14 per cent), respectively, by this fiscal end. The numbers would have trended even higher but for write-offs, primarily in the unsecured segment.”

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Moody’s upgrades outlook for Indian banking system

Banking & Finance

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Moody’s Investors Service has revised the outlook for the Indian banking system to “stable” from “negative” on the back of stabilising asset quality and improved capital drive.

The global credit rating agency, in its Banking system outlook for India, observed that the deterioration of asset quality since the onset of the coronavirus pandemic has been moderate, and an improving operating environment will support asset quality.

Moody’s upgrades India’s rating outlook to ‘Stable’ from ‘Negative’

Declining credit costs as a result of improving asset quality will lead to improvements in profitability. The agency assessed that capital will remain above pre-pandemic levels.

Moody’s expects India’s economy to continue to recover in the next 12-18 months, with GDP growing 9.3 per cent in the fiscal year ending March 2022 and 7.9 per cent in the following year.

The agency opined that the pick-up in economic activity will drive credit growth, which it expects to be 10-13 per cent annually. Weak corporate financials and funding constraints at finance companies have been key negative factors for banks but these risks have receded.

Asset quality will be stable

According to Moody’s, the deterioration of asset quality since the onset of the pandemic has been more moderate than it expected despite relatively limited regulatory support for borrowers.

The agency noted that the quality of corporate loans has improved, indicating that banks have recognised and provisioned for all legacy problem loans in this segment.

Covid second wave raises asset risks for banks: Moody’s

“The quality of retail loans has deteriorated, but to a limited degree because large-scale job losses have not occurred. We expect asset quality will further improve, leading to decline in credit costs, as economic activity normalises,” Moody’s said.

Raising equity capital

Capital ratios have risen across rated banks in the past year because most have issued new shares, per the agency.

Moody’s said public sector banks’ ability to raise equity capital from the market is particularly credit positive because it reduces their dependence on the government for capital.

However, further increases in capital will be limited because banks will use most of retained earnings to support an acceleration of loan growth, according to the agency.

The agency estimated that banks’ returns on assets will rise as credit costs will decline while banks’ core profitability will be stable.

If interest rates rise, net interest margins will increase, but it will also lead to mark-to-market losses on banks’ large holdings of government securities, it said.

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Covid second wave raises asset risks for banks: Moody’s

Banking & Finance

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The coronavirus wave will lead to new problem loans in the retail and SME segments, but a severe asset quality decline is unlikely, according to Moody’s Investors Service.

Banks’ improved profitability, capital and loss buffers will help them absorb anticipated loan losses and maintain credit strength, the global credit agency said in a report.

Moody’s observed that India’s second coronavirus wave is increasing asset risks for banks, but the country’s economic recovery, a tightening of loan underwriting criteria and continued government support will prevent a sharp spike in problem loans.

Stable NPL ratio

The agency’s baseline expectation is that newly formed non-performing loans (NPLs) at public sector banks will increase nearly 50 per cent to about 1.5 per cent of gross loans annually in the next two years.

Nevertheless, banks’ average NPL ratios will remain broadly stable, driven by the resolution of legacy NPLs and acceleration of credit growth, the global credit rating agency said in a report.

“A severe deterioration of banks’ asset quality is unlikely, despite an expected rise in new loan impairments, particularly among individuals and small businesses that were hit hardest by the virus outbreak.

“This is because government initiatives like the emergency credit-linked guarantee scheme (ECLGS) have been effective in providing immediate liquidity for businesses,” Alka Anbarasu, a Moody’s Vice President and Senior Credit Officer, said.

In addition, accommodative interest rates and loan restructuring schemes will continue to mitigate asset risks, such that the coronavirus resurgence will delay but not derail the improvements in banks’ balance sheets that had begun before the pandemic.

Moody’s said the banks rated by it also have stronger loss-absorbing buffers, which will help them withstand the asset quality decline and maintain their credit strength.

Banks had reinforced these buffers in the past year through increases in capital, loan-loss reserves and profitability, it added.

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Most Indian companies have protections to limit effect of currency fluctuations: Moody’s

Banking & Finance

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Moody’s Investors Service on Thursday said sustained weakening of the Indian rupee against the dollar will be credit negative for rated Indian companies that generate revenue in rupees but rely heavily on US-dollar debt to fund operations and thus have significant dollar-based costs.

However, the global credit rating agency expects that the negative credit implications will be limited.

Rupee view: INR positive as Fed maintains status quo

The observation comes in the backdrop of the Indian rupee closing around 74.66 against the US dollar on April 27, 2021, or about 3 per cent lower than levels in mid-March. The rupee has fallen over 15 per cent since January 2018, Moody’s said in a note.

“Most companies have protections to limit the effect of currency fluctuations. These include natural hedges, where companies generate revenue in US dollars or have contracts priced in US dollars; some US dollar revenue and financial hedges; or a combination of these factors to help limit the strain on cash flow and leverage, even under a more severe deprecation scenario,” said Annalisa Di Chiara, Senior Vice-President.

Rupee extends gains for second day; closes up by 7 paise at 74.66 against dollar

As a result, weaker credit metrics under a scenario in which the rupee depreciates a further 15 per cent against the dollar can be accommodated in the companies’ current rating levels.

Covid impact

Moody’s observed that refinancing risk associated with US dollar debt over the next 18 months also appears manageable, as most companies are well-known in the markets as repeat issuers and others are government-owned or government-linked entities with good access to the capital markets.

The agency noted that India is reporting new record daily increases in coronavirus infections, prompting new lockdowns and restrictive measures to curb the spread of the pandemic and raising concerns on their impact on the country’s pace of economic recovery.

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IndusInd Bank Q4 deposits up 27 per cent, net advances rise 3 per cent

Banking & Finance

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Private sector lender IndusInd Bank reported a 3 per cent increase in net advances and 27 per cent rise in deposits as on March 31, 2021, compared to a year ago.

According to a regulatory filing by the bank on Monday, its net advances increased to ₹2.13 lakh crore as on March 31, 2021, versus ₹2.06 lakh crore a year ago. Even sequentially, net advances increased by 3 per cent from ₹2.07 lakh crore as on December 31, 2020.

Deposits increased to ₹2.56 lakh crore as on March 31, 2021, compared to ₹2.02 lakh crore a year ago.

Moody’s affirms IndusInd Bank’s ratings, revises outlook to ‘stable’

“Retail deposits and deposits from small business customers amounted to ₹95,811 crore as of March 31, 2021, as compared to ₹85,914 crore as of December 31, 2020,” IndusInd Bank said.

On a sequential basis, deposits increased 7 per cent in the fourth quarter of last fiscal from ₹2.39 lakh crore as on December 31, 2020.

Why IndusInd Bank FD is an attractive short-term choice

The bank’s CASA ratio was at 41.8 per cent as on March 31, 2020, from 40.4 per cent a year ago.

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