Fitch Downgrades Debt Ratings of ICICI Bank, Axis Bank
Both the banks have also seen a cut in senior debt ratings to ‘BB+’ from ‘BBB-’ in line with the IDR, as the debts represent the bank’s unsecured and unsubordinated obligations.
Image for Representation. (Photo: Reuters)
Rating agency Fitch on Monday said it has downgraded issuer default rating (IDR) of two of India’s biggest private sector banks --- ICICI Bank and Axis Bank -- by a notch as their financial health has weakened. The issuer default rating offers an opinion on the relative ability of any company to meet its financial commitments and any downgrade could mean a rise in the cost of funding for the firm.
Both the banks have also seen a cut in senior debt ratings to ‘BB+’ from ‘BBB-’ in line with the IDR, as the debts represent the bank’s unsecured and unsubordinated obligations, Fitch said. While Fitch’s BBB rating indicates good credit quality, BB hints at speculative-grade investment.
“Fitch Ratings has downgraded ICICI Bank Ltd's Long-Term IDR to ‘BB+’ from ‘BBB-’ and its Viability Rating to ‘bb+’ from ‘bbb-’. The outlook on the IDR is stable,” it said.
At 10am, shares of ICICI Bank were trading down 0.6% at Rs 420.25, while Axis Bank shares were nearly flat at Rs 812 apiece.
Most of ICICI’s key financial indicators are generally weaker than those of banks rated higher by Fitch, the rating agency said. It added that the downgrade of Axis Bank’s viability ratings is a reflection of the fact that the bank’s relatively weak core capitalization and asset quality were not commensurate with Fitch’s expectation.
Fitch also said the Indian banking the sector will perform below peers over the next one to two years in spite of expectations of high economic growth and improving business prospects in India.
The performance of Indian banks should have largely bottomed out, but the sector is still struggling with poor asset quality and weak core capitalisation, it added.
“We estimate that Indian banks' impaired-loan ratio have declined to an average of 10.8% by nine months of 2019-20 from 11.5% in the financial year ended March 2018 (FY18), which continues to be high by global standards,” it said.
Fitch also lowered its midpoint for India’s operating environment to ‘bb+’ from ‘'bbb-’ following a review of the banking sector’s performance, particularly in the last three years, and its regulatory framework.
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