New Delhi: Global credit ratings agency Moody's Investors Service on Wednesday upgraded its outlook on certain Indian banks and corporates to stable from negative. The rating actions taken on the Indian banks included Axis Bank, Bank of Baroda, Canara Bank, Export-Import Bank of India (EXIM India), HDFC Bank, ICICI Bank, Punjab National Bank, State Bank of India and Union Bank of India.
What It Means For The Lenders
Moody's has affirmed the long-term local and foreign current deposit ratings for Axis, HDFC Bank, ICICI and SBI, at Baa3.
For EXIM India, the long-term issuer rating has been kept at Baa3.
According to the agency, "long-term issuer ratings are opinions of the ability of entities to honor long-term senior unsecured financial obligations and contracts."
The global ratings agency has affirmed the Ba1 long-term local and foreign currency deposit ratings of BOB, Canara, PNB and Union Bank, as well as their b1 BCAs (Baseline Credit Assessments). BCA is a measure of default probability excluding external support.
Moody's said that "despite the significant economic challenges since the onset of the pandemic, their (BOB, Canara, PNB and Union Bank's) asset quality has only deteriorated modestly while capital has improved."
The agency added that, "Corporate asset quality has improved as legacy issues have been resolved while deterioration in retail asset quality was relatively moderate. Asset quality will further improve if economic activity continues to normalize."
It also mentioned that profitability of these banks will improve over the next 12-18 months as credit costs will decline in line with a lower non-performing loans (NPL) formation rate.
What Could Upgrade The Ratings
Moody's stated that BOB and PNB's BCAs could be upgraded if they are able to maintain net NPL formation rates below 1% of loans, demonstrating that structural underwriting weaknesses are being addressed.
Canara and Union Bank's BCAs could be upgraded if, in addition to improvement in asset quality, their CET1 (Common Equity Tier 1) ratio improves by 2 percentage points from current levels, it added. The CET1 ratio is a measure of a lender's capital against its assets.
Their BCAs and deposit ratings could be downgraded if asset quality deteriorates to such an extent that it leads to a lowering of capital, it further stated.
The update comes just a day after the ratings agency upgraded India's sovereign credit rating outlook to stable from negative, as "the downside risks from negative feedback between the real economy and financial system are receding." Moody's said the Indian economy has shown signs of a strong rebound after a second Covid-19 wave.
Moody's maintained India's sovereign rating at 'Baa3'.
What is Baa3 rating?
Baa3 (for Moody's) or BBB- (for rating agencies Standard & Poor's and Fitch) could be considered as "investment grade", subject to moderate credit risk. Any other lower ratings (such as ba1, ba2) might be termed "Junk" or "non-investment grade" rankings.
Outlook for Indian Corporates
The ratings agency has affirmed its Baa3 (long-term issuer rating) and upgraded its outlook to stable from negative for Tata Consultancy Services, Infosys, Reliance Industries, ONGC, Petronet LNG Ltd, UltraTech Cement, Oil India Ltd, Indian Oil Corporation Ltd, and Hindustan Petroleum Corporation Ltd.
Moody's has also affirmed the Baa3 rating of Bharat Petroleum Corporation or BPCL but kept the rating outlook as negative.
Further, Moody's has revised the outlooks to stable from negative for 10 Indian infrastructure issuers including, NTPC, NHAI, Power Grid, GAIL, Adani Green Energy Restricted Group (RG-2), Adani Transmission Ltd (Restricted Group), Adani Ports and Special Economic Zone Limited (APSEZ), Adani International Container Terminal Private Ltd (AICTPL), Adani Electricity Mumbai Limited (AEML) and Azure Power Solar Energy Private Limited (Azure Power RG-2).