Tag: outlook

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

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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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Moody’s upgrades outlook for Indian banking system

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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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Sundaram Finance presents favourable near-term outlook amid caution

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The adverse economic impact of the Covid second wave is expected to be limited to the first quarter of this fiscal, said S Viji, Chairman, Sundaram Finance.

“The tapering of the second wave coupled with aggressive vaccination drive has brightened the near-term prospects for the economy, with the adverse economic impact expected to be limited to the first quarter of FY22,” Viji said while addressing the 68th annual general meeting of the company virtually on Monday.

“The agricultural sector has turned buoyant with a near-normal monsoon, robust procurement by the government and improved Kharif sowing,” he added.

The re-establishment of GST collections to ₹1 lakh+ crore levels, increase in fertiliser sales, improved e-way bill activity, increase in power and fuel consumption, and growth in eight core industries all point to a sequential improvement in economic activity from the disruptions induced by the Covid second wave.

Also read: Sundaram Finance posts 16 per cent rise in Q1 net profit at ₹192 crore

However, the country’s ability to mobilise vaccines at scale, maintain the pace of vaccinations, and containment of the virus spread, especially as new variants emerge, will all be determinants of consumer confidence sustaining and consequently of economic recovery,” he said.

Festival season for auto

“While the automotive sector has been facing production constraints due to the global shortage of semiconductors, the recent pandemic-driven lockdowns in East Asia are compounding the challenge. This, coupled with higher input prices on fuel and commodities, presents the risk of a dampener to the upcoming festival season”, said Viji.

Focus areas

Given the level of uncertainty and volatility, Sundaram Finance to focus on striking a judicious balance between growth, quality and profitability (GQP), the time-tested trinity that has served the company well.

“Key priorities will be to support loyal customers tide over the aftermath of the Covid crisis by deploying all measures made available by the regulator and the government, drive collections and recovery efforts with a view to maintaining the traditional asset quality levels and preserving capital, and prudently pursuing growth opportunities that emerge as economic activity resumes post second wave across the well-understood and diversified asset class base that Sundaram Finance has established.” he stated.

Emerging growth areas

As the economic activity revives, the company expects the commercial vehicle segment to bounce back strongly. “In the CV space, in addition to growth in the M & HCV space, we believe that the SCV and ICV segments will continue to offer growth opportunities. In the passenger vehicle segment, we see a long run way as the consumer market matures and grows in India,” said Rajiv Lochan, Managing Director, Sundaram Finance.

The company also sees favourable growth opportunities in construction equipment and tractor segments due to heightened activities across infrastructure and the rural and agricultural sectors on the back of government push.

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Crisil Ratings revises India Inc’s credit quality outlook to ‘positive’

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Crisil Ratings has revised the credit quality outlook of India Inc for fiscal year 2022 to ‘positive’ from ‘cautiously optimistic’ earlier.

Subodh Rai, Chief Ratings Officer, Crisil Ratings said, “Our outlook factors-in strong economic growth, both domestic and global, and containment measures that are localised and less stringent compared with the first wave, which should keep domestic demand buoyant even if a third wave materialises. We believe India Inc is on higher and stronger footing.”

The credit ratio (upgrades to downgrades) in the first four months of this fiscal improved to more than 2.5 times. It had touched a decadal low of 0.54 time amid the first wave in the first half of fiscal 2021, before recovering to 1.33 times in the second half, buoyed by a rebound in demand.

Broad-based recovery

A Crisil Ratings study of 43 sectors (accounting for 75 per cent of the ₹36 lakh crore outstanding rated debt, excluding the financial sector) shows the current recovery is broad-based. As many as 28 sectors (85 per cent of outstanding corporate debt understudy) are on course to see a 100 per cent rebound in demand to pre-pandemic levels by the end of this fiscal, while six sectors will see upwards of 85 per cent.

Among sectors with the most rating upgrades, construction and engineering, and renewable energy benefited from the government’s thrust on infrastructure spending, while steel and other metals gained from higher price realisations and profitability. Pharmaceuticals and specialty chemicals continued to see buoyancy backed by both, domestic and export growth.

But contact-intensive sectors such as hospitality and education services continue to bear the brunt of the pandemic and have had more downgrades than upgrades.

To be sure, targeted relief measures by the Reserve Bank of India (RBI) and the government amid the second wave have cushioned credit profiles in some sectors.

Somasekhar Vemuri, Senior Director, Crisil Ratings said, “Besides regulatory relief measures, a secular deleveraging trend has provided India Inc the balance sheet strength to cushion impact on their credit profiles. The median gearing for the CRISIL Ratings portfolio (excluding the financial sector) declined to ~0.8 time at the end of fiscal 2020 and then to an estimated ~0.7 time in fiscal 2021, from ~1.1 times in fiscal 2016.”

That said, unsecured retail and micro, small and medium enterprise loan segments are likely to witness higher stress over the near term. “The key monitorables from here would be a fat tail in the second wave or an intense third wave. Other risks to the positive credit outlook include regional and temporal distribution of rainfall and its implications for sustained demand recovery. Small businesses, in particular, will be more vulnerable to any slack in demand,’ the ratings agency said.

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S&P revises rating outlook on ICICI Bank to ‘stable’

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S&P Global Ratings has revised its rating outlook on ICICI Bank to stable from negative.

It has affirmed its ‘BBB-’ long-term and ‘A-3’ short-term issuer credit ratings on the private sector lender as well as its ‘BBB-’ long-term issue rating on the bank’s senior notes.

“We revised the rating outlook to reflect our view that ICICI Bank will maintain strong capital position over the next 24 months. The bank will benefit from the sale of stake in subsidiaries and gradual normalisation of earnings, which should reduce risks associated with its capital position,” S&P Global Ratings said in a statement on Friday.

The agency expects ICICI Bank will maintain a risk-adjusted capital ratio of more than 10 per cent over the next 24 months. “Our expectation factors in 13 per cent to 14 per cent credit growth for the bank, an improvement in earnings, and sale of stake in insurance subsidiaries over the period,” it said.

Stressed loans to peak

The agency however expects ICICI Bank’s stressed loans (non performing loans and restructured loans) to remain high when compared to that of international peers.

It said the bank’s stressed loans may peak at 6 per cent of total loans by March 31, but it would be lower than its estimate of 11-12 per cent for the Indian banking industry.

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Shriram Life Insurance eyes 15-20% growth

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Private sector Shriram Life Insurance, which has been focussing on rural markets, is hoping to grow by 15-20 per cent on an annual basis.

“The expectation is that the life insurance industry will grow by about 15 per cent or so for the next number of years. So we hope to grow slightly faster than that — maybe between 15 per cent and 20 per cent per year,” said Casparus Kromhout, Managing Director and CEO, Shriram Life Insurance.

While the second wave of the Covid-19 pandemic has raised further uncertainties on the economic outlook, Kromhout said the life insurer has been putting a lot of things in place for supporting its existing channels. It has also been working on innovation and creating new business models.

Net profit

The life insurer registered a threefold increase in its net profit to ₹106 crore in 2020-21.

“The first quarter of last fiscal was very difficult for everyone. But we ended the year with new business premium growth of 25 per cent,” he told BusinessLine in an interaction, pointing out that a large part of the company’s customer base is from rural areas and was impacted by the pandemic.

“When the first lockdown came last year, we were very worried because our customer base was impacted by both the medical emergency and loss of income. We thought that the business would really suffer and customers wouldn’t be able to pay their premiums or buy insurance. Fortunately, we were able to come back in the second half of the year,” he said.

In 2020-21, about 47 per cent of its new business and 54 per cent of claims came from the rural segment.

Its average premium size is about ₹17,400 while the average industry premium size is around ₹50,000.

The rural areas have been quite severely impacted in the second wave of the pandemic, he said adding there has been an uptick in Covid related claims in April and May this year. He, however, said the company is well prepared to meet the rising claims.

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Ind-Ra revises banking sector outlook for FY22 to Stable

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India Ratings and Research (Ind-Ra) has revised its outlook on the overall banking sector to stable for FY22 from negative.

The credit rating agency estimated that overall stressed assets (gross non-performing assets/GNPA + restructured) could increase 30 per cent for the banking system, with the increase being almost 1.7 times in the retail segment in the second half (October 2020 till March-end 2021) FY21.

Also read: States’ fiscal deficit to moderate to 4.3% of GDP in FY22: India Ratings & Research

The agency estimates gross non-performing assets (GNPAs) at 8.8 per cent in FY21 (FY22: 10.1 per cent) and stressed assets at 10.9 per cent (11.7 per cent).

Along with revision in outlook, Ind-Ra has upgraded its FY21 credit growth estimates to 6.9 per cent from 1.8 per cent and 8.9 per cent in FY22, with the improvement in the economic environment in 2H FY21 and the government of India’s (GoI) focus on higher spending, especially on infrastructure.

Referring to the revision in outlook, Ind-Ra observed that the substantial systemic measures have brought the system-wide Covid-19-linked stress to below expected levels.

Further, banks have also strengthened their financials by raising capital and building provision buffers.

According to its assessment, provisioning cost has fallen from the earlier estimate of 2.3 per cent for FY21 to 2.1 per cent (including Covid-19-linked provisions); it is estimated at 1.5 per cent for FY22.

Outlook for PSBs

Ind-Ra

revised the outlook on public sector banks (PSBs) to Stable for FY22 from Negative.

The agency reasoned that regulatory changes led to an improvement in the ability of PSBs to raise Additional Tier (AT) I capital, a high provision cover on legacy NPAs, overall systemic support resulting in lower-than-expected Covid-19 stress, and minimal surprises arising out of amalgamation of PSBs.

Also, the fact that the GoI has earmarked ₹34,500 crore for infusion in PSBs in 4Q (January-March) FY21d should suffice for their near-term growth needs.

Outlook for private banks

Ind-Ra

said the outlook remains Stable for private banks, which continue to gain market share, both in assets and liabilities, while competing intensely with PSBs.

“Most have strengthened their capital buffers and proactively managed their portfolios. As growth revives, large private banks would benefit from credit migration due to their superior product and service proposition,” the agency said in a note.

Stressed assets

According to Ind-Ra’s estimates, stressed assets will rise 30 per cent in 2HFY21 and 8 per cent in FY22.

The agency estimates that about 1.24 per cent of the total bank book is under incremental proforma NPA and about 1.75 per cent of the total book could be restructured by end-FY21.

“As a conservative measure, the agency has not adjusted for overlaps between those categories. This is the incremental stress purely on account of the Covid-19 pandemic and does not include the slippages that banks would witness in the normal course of business,” said the note.

Also read: Lenders remain risk averse to additional lending or alter lending terms: Ind-Ra

Ind-Ra estimated the stock of stressed retail assets for PSBs could increase to 2.9 per cent in FY22 from 2.1 per cent in FY21, while it could increase from 1.2 per cent to 4.3 per cent for private banks.

Provisions

Excluding Covid-19-linked stress, Ind-Ra expects the provision coverage ratio (excluding technical write-offs) for both PSBs and private banks to reach 75 per cent-80 per cent by end-FY21.

“If we consider the provision on proforma gross NPAs (still not considering Covid-19 provisions), the resultant provision cover could be about 70 per cent at end-FY21 and FY22, while the historic slippage rate will continue and banks would still have Covid-19 provisions as buffers.

“PSBs have 0.2 per cent-0.5 per cent provisions while private banks have 1 per cent-2 per cent Covid-19 provisions, most of which is unutilised,” the agency said.

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ICRA: Negative rating actions in Mar-Dec ’20 exceeded historical 5-year average

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Rating agency ICRA on Wednesday said negative rating actions undertaken by it in the March to December 2020 period exceeded the historical five-year average.

About 13 per cent of the portfolio experienced a rating downgrade compared to the previous five-year average of 9 per cent, it said. Further, as many as 15 sectors, including aviation, hospitality, residential real estate, retail, and commercial vehicles, have a negative outlook in the near to medium term.

“The credit quality of India Inc has experienced rapid changes since the onset of the Covid-19 pandemic and the imposition of the nationwide lockdown in March 2020. Business health has been bruised in general and some entities in select sectors have been badly hurt, even though the effects have not been apocalyptic, and the worst-case scenarios have not played out,” ICRA said in a statement.

Also read: PSBs may require up to ₹43,000 cr in FY22: ICRA

According to K Ravichandran, Deputy Chief Rating Officer, ICRA, another 9 per cent of the rated entities witnessed a change in outlook — from Stable to Negative or from Positive to Stable.

“Without the various fiscal and monetary interventions which provided a liquidity relief to the borrowers, the negative rating actions could have been higher,” he said, adding that textiles, real estate and construction were the top three sectors in terms of the count of downgrades.

Besides, aviation and hospitality sectors too witnessed a number of negative rating actions.

In terms of upgrades, only 3 per cent of the rated entities were upgraded in the past 10-month period, compared to the previous five-year average of 9 per cent.

The outlook on sectors including ferrous and non-ferrous metals and textiles has been revised from Negative to Stable following the uptrend in prices and expectations of healthy revenue and profit over the medium term, it said, adding that the outlook on cement, passenger vehicles and auto ancillaries has been revised from Negative to Stable.

“ICRA expects the credit quality pressures to remain elevated in general over the near to medium term; however, the intensity is likely to remain quite varied across sectors,” said Ravichandran.

Also read: ICRA Ratings expects pressure on logistics sector in near term

The instances of defaults have been much lower in the past 10 months due to the benefit of the loan moratorium, the agency said, adding that there were only 30 defaults across the rating spectrum compared with 81 in the corresponding previous period.

It also noted that compared to its earlier expectations of about 6-8 per cent of the borrowers at the system-level to get their loans restructured, only a handful of entities in ICRA’s portfolio had applied for loan restructuring.

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