Moody's Affirms ICICI Bank Ratings

Mumbai: Moody's Investors Service on Wednesday affirmed its ratings on ICICI Bank due to the healthy capital adequacy of the country's largest private sector lender despite some reverses on asset quality.

"Moody's expects asset quality for ICICI Bank's corporate loans will remain under pressure, even beyond the quarter ending March 2016...the bank has significant buffers to withstand a meaningful deterioration in asset quality," the international ratings agency said in a note.

The bank's long-term local and foreign currency bank deposit ratings have been affirmed at 'Baa3' with a positive outlook.

ICICI Bank has "meaningful exposure" to large corporates, some of whom are showing weak debt servicing abilities, it said, identifying this as a "key source of risk" for the asset quality.

It said the bank's gross non-performing loans ratio increased to 4.21 per cent as of December 2015 from 3.29 per cent in March 2015, and acknowledged that the Reserve Bank of India's one-time asset  quality review may have resulted in the spike.

The bank had reported a 4.4 per cent decline in consolidated net profit to Rs 3,122 crore in the third quarter of the fiscal year on a three-fold increase in provisions. It had warned of NPA pains in the March quarter as well.

Moody's on Wednesday said there has been a significant improvement in its core operating profitability over last few years, with its pre-provision income to average assets ratio increasing to 3.18 per cent for FY15 from 1.91 per cent in FY09.

This was possible on a structural improvement in its funding profile, as well as higher net interest margins and better cost-to-income ratios, it said.

Even if bad assets increase sharply, the bank can rebuild its loan loss reserve levels over a reasonable period of time by providing for higher credit costs, it said.

The bank's common equity tier-I ratio of 12.7 per cent as of December 2015 displays "strong capital levels", the agency said, adding that sale of stakes in subsidiaries, like the one in its life insurance company done recently, will also support the buffers.

"These strong buffers have led to the bank's BCA being affirmed at baa3, despite the pressure on its asset quality," it said, adding that the rating is on the upper end of the scorecard.

An upgradation in India's sovereign rating (Baa3 with a positive outlook) can help in the bank's senior unsecured debt and deposit ratings being upgraded, it said.

Moody's flagged a substantial increase in the non-performing loans, and a fall in core earnings in such a way the ability to support an increase in credit costs is impacted, as the key risk factors to its rating.

Shares in ICICI Bank, on Wednesday, ended 0.25 per cent lower at Rs 216.30 on the BSE, whose benchmark Sensex index finished up 0.55 per cent.