Moody's revises ratings of ICICI, Axis and HDFC Bank

Moody’s Investors Service has downgraded the standalone bank financial strength rating (BFSR) of three Indian banks - Axis Bank, HDFC Bank and ICICI Bank- to D+ from C-, which now maps to a baseline credit assessment (BCA) of baa3 from baa2 on the long-term scale, it said.

The ratings action is part of an ongoing global review affecting all banks whose standalone ratings are higher than the rating of the government where they are domiciled, and conclude a review that was initiated on 30 April, Moody’s said in a press release.

All revised ratings carry stable outlooks.

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The ratings agency said the ratings of the three banks were revised on the basis that “their creditworthiness is highly correlated with the government’s credit strength” and took into account three factors: the extent to which their businesses depend on the domestic macroeconomic and financial environment; the degree of reliance on market-based funding; and their direct or indirect exposures to domestic sovereign debt, compared with their capital bases.

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The ratings agency noted that all three banks had a “relatively low level of cross-border diversification of their operations”; a high level of balance-sheet exposure to domestic sovereign debt, compared with their capital bases; possessed “franchise resilience and intrinsic strength within the operating environment”; and lacked “any ongoing support from foreign ownership”.

“Our review indicated that there are little, if any, reasons to believe that these banks would be insulated from a government debt crisis,” it said. “More particularly, we note their significant direct exposure to the Indian government securities, equivalent to 239 percent of tier 1 at Axis Bank, 226 percent of tier 1 at HDFC Bank and 143 percent of tier 1 at ICICI (based on latest publicly available data).”

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For the entire press release, click here.