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S&P, BFSI News, ET BFSI

Banking & Finance

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Earnings of Indian banks will get a boost from easing non-performing loans and the nation’s economic recovery that will drive demand for credit.

Many large banks saw their nonperforming loan ratios decline “as new NPA formation was more than offset by recoveries on retail loans,” said Nikita Anand, an analyst at S&P Global Ratings, after both private-sector and government-owned banks reported an improvement in overall asset quality in the fiscal second quarter that ended Sept. 30. “[The banks’] earnings have improved with credit costs moderating,” he said.

As on September 30, the weak loan ratio peaked close to 10 per cent. Credit costs, which reflect provisioning on bad loans, will also likely hit their lowest level in 7 years. This in turn should boost earnings, according to S&P.

State Bank of India, the country’s largest bank by assets, reported total NPAs of Rs 1.25 lakh crore for the quarter ended September 30, down from Rs 1.36 lakh crore in the previous quarter and Rs 1.27 lakh crore in the same period a year ago. Bank of Baroda and Punjab National Bank also saw quarter-over-quarter falls in NPAs.

Meanwhile, the ratings agency said that it is sceptical of allowing corporate ownership in banks, given India’s weak corporate governance. Corporate ownership of banks raises risks of intergroup lending, diversion of funds and reputational exposure, it said. Currently, the Reserve Bank of India refrained from allowing corporate ownership in banks.

Better asset quality, economic rebound brighten Indian banks' earnings outlook: S&P

Economy on mend

India’s economy grew 20.1% year over year in the April-to-June quarter, recovering from a 24.4% contraction in the same period of 2020 when the COVID-19 pandemic forced a strict lockdown across the country. The Reserve Bank of India expects the economy to grow about 9.5% in the fiscal year to March 2022, and Governor Shaktikanta Das on November 16 underscored the “need for sustained impetus so that growth could return to, or better still, exceed the pre-pandemic trend.”

The rating agency said that the economy’s expansion is expected to outpace that of developing market peers in the coming few years. “In comparison, some tourism-dependent countries, such as Thailand, are likely to see long-term scarring as we expect only a gradual resumption of travel-related industries,” they agency said.

Ahead of the Diwali festive season, gross bank credit grew 6.7% year over year in both August and September, reversing a contraction earlier in the year, central bank data show.

“With cash flows improving for underlying borrowers due to easing of the pandemic and lockdowns, most banks have reported an improvement in asset quality and reduction in nonperforming assets,” said Krishnan Sitaraman, senior director at Crisil, a unit of S&P Global Inc.

“It is also a reflection of the clear improvement in economic fundamentals for the country” after the economy contracted 7.3% in the year that ended March 31, 2021, Sitaraman said.

Banks are likely to sustain their earnings improvement in 2022 if credit costs continue to moderate, though Sitaraman flagged the risk of a possible fresh wave of Covid infections and its potential impact on economic activity.

Better asset quality, economic rebound brighten Indian banks' earnings outlook: S&P

Better earnings

The net profit of State Bank of India in the second quarter rose to Rs 8,890 crore from Rs 5,246 crore in the prior-year period. ICICI Bank Ltd’s net profit increased to Rs 6,092 crore from Rs 4,882 crore in the prior-year period.

SBI’s credit cost and net interest margin profile were better than expectations, ICICI Securities said in a note after the lender reported its earnings. SBI’s management expects an opportunity to grow its corporate and small business portfolios as economic activity picks up, the merchant banking and retail broking arm of India’s second-biggest private-sector lender by assets said in a note. “SBI also has sufficient capital and liquidity on balance sheet to support growth.”

HDFC Bank, the country’s largest private-sector bank, saw its NPLs ease to Rs 21,000 crore from Rs 23,000 crore in the first quarter. The lender said its bad loans from small-and-medium scale businesses declined over the previous quarter and the corporate book is resilient, suggesting that a bigger part of incremental delinquency is flowing from the retail and agriculture segments, ICICI Securities said in a note after HDFC reported its earnings.

“Further curtailment of slippages, better recoveries and improved collections will support asset quality trends in coming quarters [for HDFC Bank],” according to ICICI Securities.



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S&P upgrades credit ratings of Manappuram Finance

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International rating agency S&P has upgraded the long term issuer credit rating of Manappuram Finance Limited from “B+” to “BB-” with stable outlook. The rating agency also affirmed the ‘B’ short-term issuer credit rating on the company.

According to the Rating Rationale released by S&P, the gold-based lending business of the company has proved to be an effective counterbalance to weakness in India’s micro finance segment. Manappuram Finance is expected to continue to outperform its non-gold NBFC peers over the next 12 months in terms of asset quality and profitability, which would be reflected in the company’s lower credit costs, above-average profitability and strong capitalisation.

Also see: ‘Microfinance lenders should not put profit above social objectives’

V P Nandakumar, MD & CEO, Manappuram Finance, said, “The upgrade reflects the overall recovery in the economy and better prospects for growth. With the unorganised sector also getting back on its feet, we expect improved growth in gold loans and micro finance, as well as our other business verticals.”

High stress likely

S&P also noted that Manappuram’s gold-based lending model with a three-month tenor allows it to recognise asset quality stress early. However, stress will likely remain high in Manappuram’s non-gold portfolio, especially in the micro finance business. Manappuram’s funding profile is also improving with a shift towards longer tenor debt though material exposure to short-term wholesale funding remains.

The agency expects Manappuram’s risk-adjusted capital ratio to stay above 30 per cent over the next 12 months, one of the highest among its rated peers. Core earnings are likely to remain at more than 5 per cent of its average managed assets during this period.

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Indian banks brace for bad loans with stronger balance sheets, says new S&P report, BFSI News, ET BFSI

Banking & Finance

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Indian banks’ prior efforts to strengthen their balance sheets will help them mitigate the impact of asset quality as bad loans ticked higher in the April-to-June quarter following a deadlier wave of the COVID-19 pandemic, according to a new report by S&P Global Market Intelligence research.

“Banks have been taking steps to fortify their balance sheets over the last year or so to face the asset quality impact. These have been through enhancing capital base, increasing provisioning cover and having adequate amounts of liquidity,” said Krishnan Sitaraman, senior director at CRISIL, a unit of S&P Global Inc.

The June quarter saw gross NPAs rising, mainly in retail and small and medium-sized enterprise portfolios for banks.

“That is because these segments have been impacted more by the pandemic and the lockdown measures. The pandemic’s second wave has had a much larger health impact and geographical spread as compared to the first,” Sitaraman said.

State Bank of India, the country’s largest lender by assets, reported total nonperforming loans of Rs 1.36 lakh crore for the fiscal first quarter that ended on June 30, up from Rs 1.28 lakh crore in the previous three months and Rs 1.31 lakh crore in the same period of 2020.

ICICI Bank, the second-biggest private-sector lender, said its gross nonperforming assets rose by Rs 7231 crore in the first quarter, mainly from its retail and business portfolio. State-run Bank of Baroda reported fresh slippages of Rs 5129 crore in the first quarter, versus Rs 2740 crores in the prior-year period.

During the fiscal first quarter, Indian banks saw higher-than-expected slippages of more than 200% year over year that largely arose from retail and SMEs, according to an Aug. 16 research note from Jefferies.

Slippages were higher than expected as new COVID-19 restrictions affected collections, Jefferies analysts said, adding that some banks have started to recover in July and normalcy may return in the fiscal second or third quarter.

India’s economy took a severe hit during the second wave of the coronavirus, with the number of daily cases peaking above 400,000 in May. Cases have tailed off in recent weeks as the government stepped up vaccinations.

Still, the high number of COVID-19 cases and deaths are expected to have had a bigger impact on the economy in terms of jobs lost and businesses shut. Also, most forbearance measures announced last year, including a Supreme Court order stopping banks from classifying delinquent loans as nonperforming assets had been lifted after the economy recovered from the initial wave of infections.

Banks are now seeing the full extent of borrower stress with a one-time debt restructuring facility and the Supreme Court’s standstill on NPA recognition no longer available.

“In the absence of regulatory measures such as moratorium, the gross NPA formation due to the recent wave of COVID-19 is being upfronted in the first half of the current fiscal [year] for the system, including us,” said Sandeep Bakhshi, CEO of ICICI Bank, during a July 24 earnings call. Bakhshi expects the bank’s gross NPA additions to be lower in the second quarter and “decline more meaningfully in the second half of fiscal 2022,” based on expectations of economic activity.

Stress tests by the Reserve Bank of India indicated that the bad loans of all banks may rise to 9.80% by March 2022 from 7.50% in the same month of this year under a baseline scenario. However, the bad loans ratio could rise to as high as 11.22% by March 2022 under a “severe stress” scenario for key macroeconomic indicators, the central bank said in its biannual Financial Stability Report released July 1.

“Many banks have set aside higher provisioning buffers and raised capital in the last one year or so. This should help them absorb the rising stress in their retail book,” said Nikita Anand, an analyst at S&P Global Ratings.

“On the other hand, banks with lower provisioning buffers and weaker capitalization could see a sharp impact on their profits and capital levels,” Anand said. “This could be more acute for banks with significant underlying exposure to small business owners or unsecured retail products where loss given default could be higher.”



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HDFC Bank’s AT1 bonds get Moody’s Ba3 rating, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: HDFC Bank‘s proposed Additional Tier 1 (AT1) bonds have been rated Ba3, three notches below their deposit ratings by Moody’s, with limited likelihood of any rating upgrade in the next 12-18 months due to possible weakness in sovereign rating and the likelihood of rising bad assets in the Indian financial system.

The bank will be the first private sector lender to offer those quasi-equity securities offshore if it finally launches the overseas sale that is expected to open for subscription in the next 7 days.

HDFC Bank will likely set a benchmark for many other local lenders including Union Bank of India, State Bank of India and Axis Bank.

S&P is also expected to come out with a similar rating grade for HDFC Bank’s AT1 series.

The initial guidance is likely to be less than 4 per cent, although it could finally settle anything between 3.5 per cent and 4 per cent, said people familiar with the matter. The size of the issue is expected to be in the range of $500 million to $1 billion depending on investor demand, ET reported on July 29.

“Roadshows have just begun across the world,” one of the persons cited above said.

In between, there were hard negotiations for the pricing particularly after a Thai bank raised AT1 at about 4 per cent two weeks ago.

The borrower is actually looking for 3.5 per cent, which looks tough. Still, there will be good demand for any paper series, branded with the HDFC mark, dealers said.

HDFC Bank and individual investment bankers could not be contacted immediately for comments.

Nearly a dozen banks have been appointed to help the proposed bond sale. Those banks include Barclays, Bank of America, Citi, HSBC, JP Morgan, Standard Chartered, MUFG, Sofgen, BNP Paribas and Morgan Stanley.

AT1, also known as perpetual bonds, add to banks’ capital base unlike perpetual papers issued by any corporate. Such securities do not have any fixed maturity but generally have a five-year call option that allows an exit route for investors.

“The Ba3 (hyb) rating is three notches below HDFC Bank’s baa3 Baseline Credit Assessment (BCA) and Adjusted BCA, reflecting the probability of impairment associated with non-cumulative coupon suspension, as well as the likelihood of high loss severity when the bank reaches the point of non-viability,” Moody’s said in a report Monday.

The principal and any accrued but unpaid distributions on these capital securities would be written down, partially or in full, if HDFC Bank’s common equity tier 1 (CET1) ratio is at or below 5.5 per cent any time prior to 1 October 2021, and 6.125 per cent from and including 1st October, 2021.

In such a scenario, the write-down may be temporary, and the amount could be reinstated subject to the Reserve Bank of India‘s (RBI) conditions, Moody’s said.

“A lowering of HDFC Bank’s BCA (Baseline Credit Assessment) will lead to a rating downgrade of the proposed AT1 securities,” Moody’s added.



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Key factors driving the market, BFSI News, ET BFSI

Personal Finance

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Bulls continued the upward momentum on Dalal Street on Tuesday as well, thanks to buying in bank and financial services stocks. However, gains were in check due to some weak global cues.

A clear trend in the market during the last several trading sessions is the outperformance of largecaps led by high-quality private sector financials. The underperformance of the mid- and smallcaps segment is a desirable and healthy trend since it is removing the froth in the segment, said an analyst.

“An area of concern in the market now is the frenzy in the IPO market where retail investors are applying for IPOs and OFSs without any consideration of fundamentals and future prospects. The goal is just to make money on the listing. Many retail investors are likely to lose money in the future from some of these issues,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

How are the bluechips doing?
After opening in the green, benchmark indices climbed further. At 9.32 am, BSE flagship Sensex was up 207 points or 0.40 per cent to 54,610. NSE benchmark Nifty advanced 52 points or 0.32 per cent to 16,310.

“Nifty closed higher after testing our turnaround point of 16,174, which is encouraging, but not an outright signal towards directional upsides. We would pin our hopes on the 16,246/33 region to hold early dips and attempt a push towards 16,320 or 16,400. However, even such an up move would still be within our broadening wedge expectation. In other words, volatility would continue to dominate,” said Anand James, Chief Market Strategist at Geojit Financial Services.

In the 50-share pack Nifty, HDFC was the biggest gainer, up 1.57 per cent. Kotak Mahindra Bank, Axis Bank, HDFC Life Insurance, Reliance Industries and IndusInd Bank were among other gainers.

Shree Cement was the top loser in the pack, down 3.50 per cent. Power Grid, Hero MotoCorp, Grasim, Nestle India, Bajaj Auto, Wipro, Britannia, Indian Oil and ITC were other losers in the pack.

FACTORS DRIVING MARKETS
Good news
US job data: Job openings, a measure of labour demand, shot up by 590,000 to a record high of 10.1 million on the last day of June, the US Labour Department reported. This signifies improving economic conditions.

Bad news:
Bond yields, dollar rise: The dollar index firmed near more than two-week high. US Treasury yields rose to a more than three week high as record-high job openings on top of stronger-than-expected employment gains in July added to the narrative of an improving labour market.

Rate hikes?: Two Federal Reserve officials said on Monday that the US economy is growing rapidly and that while the labour market still has room for improvement, inflation is already at a level that could satisfy one leg of a key test for the beginning of interest rate hikes.

Virus scare: Persistent concerns over the spread of the Delta variant of the coronavirus dented sentiment and triggered falls in metals and oil prices.

Broader markets
Broader market indices were trading mixed, underperforming their headline peers in morning trade. Nifty Smallcap was down 0.04 per cent, while Nifty Midcap rose 0.45 per cent. Broadest index on NSE, Nifty 500 was up 0.32 per cent.

Birlasoft, IOL Chemicals and Pharma, Future retail, Hindustan Aeronautics, GSPL and Escorts were gainers from the space, while Vodafone Idea, Prestige Estates, IDFC First Bank, Happiest Minds, Caplin Point and BASF were under selling pressure.

Global markets
MSCI’s broadest index of Asia-Pacific shares outside Japan declined 0.4 per cent, with Korea’s KOSPI index down 0.56 per cent, while China’s blue chip index CSI300 shed 0.33 per cent.

Japan’s Nikkei was UP 0.9 per cent while Australia’s benchmark S&P/ASX200 was 0.2 per cent higher on the back of strong earnings results.



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S&P, BFSI News, ET BFSI

Banking & Finance

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Global ratings agency S&P said has said its base case is that the global banking sector will continue to slowly stabilise as the economic rebound gains momentum and as support is gradually withdrawn. Should a re-intensification of risks occur, this will require more support from public authorities for the real economy.

For 11 of the top 20 banking jurisdictions, S&P estimates that a return to pre-Covid-19 levels of financial strength will not occur until 2023 or beyond. For the other nine, it estimates that recovery may occur by year-end 2022.

Strong support

The strong support by authorities for households and corporates over the course of Covid-19 has clearly helped banks, it said.
Lenders were also well-positioned going into the pandemic after banks bolstered their capital, provisioning, funding and liquidity buffers in the wake of the global financial crisis. S&P Global Ratings expects normalisation to be the dominant theme of the next 12 months as rebounding economies, vaccinations and state measures help banks bounce back much more quickly than was conceivable in the dark days of 2020.

“We see less downside risk for banks as economies rebound, vaccinations kick in and banks feel the stabilising effects of state intervention,” said S&P Global Ratings credit analyst Gavin Gunning.

“With no vaccine in October 2020, we believed at the time that 2021 could be a very difficult year for banks. State intervention on behalf of corporates and households — including significant fiscal and monetary policy support — is working and banks have benefited,” said Gunning.

Improving outlook

S&P’s net negative outlook for the global banking sector improved to 1 per cent in June from 31 per cent in October 2020. As at June 25, about 13 per cent of bank outlooks were negative. This is significantly lower than October 2020 when about one-third of rating outlooks on banks were negative.

Credit losses

Credit losses for Asia-Pacific banks could reach $585 billion by 2022, or nearly double the pre-Covid level raising credit costs for banks, S&P Global had said in June.

The credit costs of the Indian banking system may rise to 2.4 per cent by March 2022, compared to a base case of 2.2 per cent, according to the S&P report, “Intervention Worked: Credit Losses Set To Decline For Most Asia-Pacific Banks”.

“In India and Indonesia, where banks have suffered higher asset distress in recent years, the credit losses are set to trend closer to our expected long-term average in the coming years,” S&P had said.

Moratorium cushions blow

S&P had said moratoriums on loan repayments–together with fiscal, monetary, and policy support–have helped cushion the blow to borrowers in Asia-Pacific from the Covid outbreak and containment measures.

Credit losses are set to fall across most Asia-Pacific banking systems over the next two years, partly because targeted assistance to stretched borrowers will likely continue in many places until pandemic-related challenges substantially abate, it had said.



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India’s risk-averse lenders are emerging as one of the biggest hurdles to its recovery, BFSI News, ET BFSI

Banking & Finance

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India’s risk-averse lenders are emerging as one of the biggest hurdles to the speed of the nation’s recovery from the pandemic-induced downturn, as they hold back credit when the economy needs it the most.

Loans to companies and individuals has been growing at a subdued 5.5%-6% in recent months, which is half the pace seen before the pandemic struck, Reserve Bank of India data shows. The nation’s biggest lender State Bank of India wants to nearly double its credit growth rate to 10% in the year started April 1, but is willing to miss the goal.

“It is a very fragile situation,” Dinesh Khara, chairman of SBI, said after reporting earnings for the fiscal year ended March. The bank would not “compromise” on asset quality to achieve targets, he said.

Khara’s comments underline the biggest obstacle to both credit off-take and economic growth, pegged at 9.5% this year, already reduced from the central bank’s previous forecast of 10.5% and following an unprecedented contraction last year. Banks’ risk aversion — or the fear of soured loans jumping in a tough economic environment — could slow the economy’s recovery further, according to analysts, including those at the RBI.

“Credit is a necessary and probably most important ingredient for economic growth,” according to S. S. Mundra, a former deputy governor of RBI, who estimated that the multiplier effect of credit on nominal gross domestic product growth is 1.6 times.

It doesn’t help India’s case that it’s already home to one of the biggest piles of soured loans among major economies. And add to that a crisis in the shadow banking sector, which culminated in the rescue of two lenders and bankruptcy of two more over the past couple of years.

Corporate willingness for new investments is low, according to the Centre for Monitoring Indian Economy Pvt., with capital expenditure declining. While companies have posted bumper profits mostly on the back of widespread cost cutting, most have used the extra funds generated to pay down bank loans.

India’s risk-averse lenders are emerging as one of the biggest hurdles to its recovery

According to research from SBI, where economists analyzed the top 15 sectors and a thousand listed companies, more than 1.7 trillion rupees ($22.8 billion) worth of debt was pared last year. Refineries, steel, fertilizers, mining and mineral products as well as textile companies alone reduced debt by more than 1.5 trillion rupees, with the trend continuing this year, the bank’s chief economist Soumya Kanti Ghosh wrote recently.

“Any meaningful recovery beyond a 10% growth in credit demand will require a substantial turn in the private capex cycle, which still seems sometime away as corporates are focused on deleveraging,” said Teresa John, economist at Nirmal Bang Equities Pvt. in Mumbai. She forecasts GDP growth of 7% this year, which is at the lower end of a Bloomberg survey with consensus at 9.2%.

What Bloomberg Economics Says…
“A further slump in credit growth means that the RBI is likely to allow some more time for credit recovery to take shape before its begins to unwind its stimulus measures.”

— Abhishek Gupta, India economist

Consumers too are repairing their finances, which bodes ill for overall demand for goods and services as well as retail loans, and in turn economic growth. The current recovery is likely to be less steep than the bounce that unfolded in late 2020 and early 2021, according to analysts at S&P Global Ratings.

“Households are running down savings,” the S&P analysts wrote. “A desire to rebuild their cash holding may delay spending even as the economy reopens.”

And while Covid-19 relief measures may provide banks some reprieve, the need to raise capital will remain high once virus related stress start to emerge on their balance sheets.

“Indian banks’ challenges posed by the coronavirus pandemic have increased due to a virulent second wave,” Fitch Ratings’ Saswata Guha and Prakash Pandey said this week, as they cut India’s growth forecast by 280 basis points to 10%. That underlines “our belief that renewed restrictions have slowed recovery efforts and left banks with a moderately worse outlook for business and revenue generation.”



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Loan growth shows virus leaving deep scars on India’s economy, BFSI News, ET BFSI

Banking & Finance

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India’s risk-averse lenders are emerging as one of the biggest hurdles to the speed of the nation’s recovery from the pandemic-induced downturn, as they hold back credit when the economy needs it the most.

Loans to companies and individuals has been growing at a subdued 5.5%-6% in recent months, which is half the pace seen before the pandemic struck, Reserve Bank of India data shows. The nation’s biggest lender State Bank of India wants to nearly double its credit growth rate to 10% in the year started April 1, but is willing to miss the goal.

“It is a very fragile situation,” Dinesh Khara, chairman of SBI, said after reporting earnings for the fiscal year ended March. The bank would not “compromise” on asset quality to achieve targets, he said.

Khara’s comments underline the biggest obstacle to both credit off-take and economic growth, pegged at 9.5% this year, already reduced from the central bank’s previous forecast of 10.5% and following an unprecedented contraction last year. Banks’ risk aversion — or the fear of soured loans jumping in a tough economic environment — could slow the economy’s recovery further, according to analysts, including those at the RBI.

“Credit is a necessary and probably most important ingredient for economic growth,” according to S. S. Mundra, a former deputy governor of RBI, who estimated that the multiplier effect of credit on nominal gross domestic product growth is 1.6 times.

It doesn’t help India’s case that it’s already home to one of the biggest piles of soured loans among major economies. And add to that a crisis in the shadow banking sector, which culminated in the rescue of two lenders and bankruptcy of two more over the past couple of years.

The RBI expects banks’ bad-loan ratio to rise to 9.8% by the end of this financial year from 7.48% a year ago.

Sluggish Capex
While banks are dithering on loans on the one hand, companies are pushing back investment plans amid lack of demand on the other.

Corporate willingness for new investments is low, according to the Centre for Monitoring Indian Economy Pvt., with capital expenditure declining. While companies have posted bumper profits mostly on the back of widespread cost cutting, most have used the extra funds generated to pay down bank loans.
Loan growth shows virus leaving deep scars on India’s economy
According to research from SBI, where economists analyzed the top 15 sectors and a thousand listed companies, more than 1.7 trillion rupees ($22.8 billion) worth of debt was pared last year. Refineries, steel, fertilizers, mining and mineral products as well as textile companies alone reduced debt by more than 1.5 trillion rupees, with the trend continuing this year, the bank’s chief economist Soumya Kanti Ghosh wrote recently.

“Any meaningful recovery beyond a 10% growth in credit demand will require a substantial turn in the private capex cycle, which still seems sometime away as corporates are focused on deleveraging,” said Teresa John, economist at Nirmal Bang Equities Pvt. in Mumbai. She forecasts GDP growth of 7% this year, which is at the lower end of a Bloomberg survey with consensus at 9.2%.

What Bloomberg Economics Says…
“A further slump in credit growth means that the RBI is likely to allow some more time for credit recovery to take shape before its begins to unwind its stimulus measures.”

— Abhishek Gupta, India economist

Consumers too are repairing their finances, which bodes ill for overall demand for goods and services as well as retail loans, and in turn economic growth. The current recovery is likely to be less steep than the bounce that unfolded in late 2020 and early 2021, according to analysts at S&P Global Ratings.

“Households are running down savings,” the S&P analysts wrote. “A desire to rebuild their cash holding may delay spending even as the economy reopens.”

And while Covid-19 relief measures may provide banks some reprieve, the need to raise capital will remain high once virus related stress start to emerge on their balance sheets.

“Indian banks’ challenges posed by the coronavirus pandemic have increased due to a virulent second wave,” Fitch Ratings’ Saswata Guha and Prakash Pandey said this week, as they cut India’s growth forecast by 280 basis points to 10%. That underlines “our belief that renewed restrictions have slowed recovery efforts and left banks with a moderately worse outlook for business and revenue generation.”



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S&P revises ICICI Bank outlook to stable from negative, BFSI News, ET BFSI

Banking & Finance

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NEW DELHI: S&P Global Ratings on Friday said it has revised the rating outlook on ICICI Bank Ltd to stable from negative on grounds that the lender will benefit from the sale of stake in subsidiaries.

The rating agency affirmed its ‘BBB-‘ long-term and ‘A-3’ short-term issuer credit ratings on ICICI Bank.

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

In a statement, S&P forecast that ICICI Bank will maintain a risk-adjusted capital (RAC) ratio of more than 10 per cent over the next 24 months.

“Our expectation factors in 13-14 per cent credit growth for the bank, an improvement in earnings, and sale of stake in insurance subsidiaries over the period,” it said.

ICICI Bank’s stressed loans (non-performing loans and restructured loans) are likely to remain high when compared to that of international peers.

The bank’s stressed loans are expected to peak at 6 per cent of total loans in the fiscal year ending March 2022, lower than the estimate of 11-12 per cent for the Indian banking industry.

“The bank’s new non-performing loans (NPLs) are likely to stay elevated in fiscal 2022 owing to the impact of the second wave of COVID-19 infections. In our view, localized lockdowns will hit small and midsize enterprise (SME) borrowers the most,” it said.

Retail loans, especially unsecured personal loans and credit card debt, are also vulnerable.

For ICICI Bank, SME loans (accounting for 4.2 per cent of total loans), personal loans (6.7 per cent), credit cards (2.4 per cent) and rural loans (10 per cent) could contribute to the increase in NPLs.

ICICI Bank has made COVID-19 related provisions to the tune of 1 per cent of advances.

This, S&P said, should help smoothen the hit from pandemic-related losses.

“The bank’s better customer profile and underwriting relative to the Indian banking system should limit losses,” it added.

ICICI Bank’s lower credit costs than in the past should enhance its profitability, it said estimated core earnings at 1.3-1.6 per cent of assets over the next two years, with further upside possible from the sale of stake in subsidiaries.

“The stable outlook reflects our view that ICICI Bank’s capitalization will remain strong over the next 24 months, aided by better earnings and profit from the sale of a stake in subsidiaries. We factor in a slight deterioration in the bank’s asset quality and performance due to COVID-19,” it said.

In its base case, ICICI Bank will maintain its strong market position, strong capital, better-than-system asset quality, and good funding and liquidity over the next 24 months.

“An upgrade of ICICI Bank is unlikely in the next one to two years because that would require an improvement in the bank’s financial profile as well as the sovereign credit rating on India.

“Our assessment of ICICI Bank’s financial profile may improve if the bank’s asset quality strengthens to levels in line with international peers, and it maintains its capitalization at a strong level,” it said.



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

Banking & Finance

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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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