Moody’s Upgrades ICICI & Axis Bank’s Baseline Credit Assessment

Moody’s upgrades ICICI and Axis Bank’s baseline credit assessment.

Moody’s Investors Service has upgraded the baseline credit assessments of ICICI Bank and Axis Bank, reflecting improvement in credit fundamentals, particularly asset quality.

The global rating agency has upgraded the Baseline Credit Assessment (BCA) from ba1 to baa3.

Moody’s said in a statement on Friday that the upgrade to the BCAs does not change the deposit ratings, as they are already at the same level as India’s sovereign rating (BAA3 stable).

Moody’s said both the banks have seen a significant improvement in asset quality, with a decline in gross and net non-performing loan (NPL) ratios.

Credit costs have also decreased at the same time, as provision coverage has increased. Lower credit cost has resulted in higher profitability.

Let us tell you that the returns on assets of ICICI Bank and Axis Bank for the financial year ending March 2022 were 1.8 percent and 1.2 percent respectively, as against the average of 0.8 percent and 0.4 percent in the four years ended March 2020.

It added that ICICI Bank’s profits have also benefited from the increase in net interest margin, as the share of low-margin international business has come down in the last four years.

Both lenders have raised equity capital, resulting in significantly higher capital ratios.

The Core Equity Tier 1 ratios of ICICI Bank and Axis Bank stood at 13.6 percent and 15.2 percent as compared to 17.6 percent and 15.2 percent respectively at the end of March 2022.

However, it said that Axis Bank’s proposed acquisition of Citigroup Inc’s Indian consumer assets would result in a fall in the capital at the bank by about 230 bps.

Since Axis Bank has good exposure to the capital market, the rating agency expects the bank to raise capital to maintain its existing capital ratio.

Axis Bank is targeting to close the acquisition by March 2023.