S&P upgrades Axis Bank rating on improving asset quality
S&P Global Ratings on Tuesday lifted its credit rating on Axis Bank with a ‘stable’ outlook on the expectation that the private sector lender would maintain good asset quality over the next two years.
The U.S.-based agency said India’s robust economic growth should support borrowers’ creditworthiness and Axis Bank’s weak loans, or nonperforming loans, could decline to 2.5-3% of total loans by end-March 2023, from 3.7% as of March 31, 2022.
Axis Bank can absorb the impact of higher inflation and interest rates, S&P said.
The long-term and short-term issuer credit rating on Axis Bank has been raised to ‘BBB-/A-3’ from ‘BB+/B’.
The outlook on the long-term rating is stable. The long-term issue rating on the bank’s senior unsecured notes has been raised to ‘BBB-‘ from ‘BB+’.
“The stable outlook reflects the bank’s strong market position, ample capital buffers, and stable deposit base. Axis Bank should be able to maintain its good asset quality, supported by stable macroeconomic conditions in India and the bank’s well-developed risk management,” S&P said.
The agency said that the small and midsize enterprise sector and low-income households are vulnerable to rising interest rates and high inflation. However, in the case of moderate interest-rate increases, these risks are manageable for Axis Bank.
“The bank’s ample provisioning and capital buffers can help absorb a moderate rise in credit stress. The bank’s tighter risk management should also support credit quality. Axis Bank’s asset quality is likely to stay better than the Indian sector average and comparable to that of similar rated international peers over the next two years.
“This follows gradual improvements in recent years with a resolution and recovery of legacy weak loans,” it said.
“The stable outlook reflects our view that the bank will maintain its strong market position in India’s banking sector over the next two years. The bank’s capitalisation should stay comfortable… Steady growth in Axis Bank’s retail deposit base as well as good access to capital markets should support its funding profile,” S&P added.
“An upgrade of Axis Bank is unlikely over the next one to two years. This is because an upgrade will require an improvement in the bank’s financial profile as well as the sovereign credit rating on India,” S&P added.
Shares of Axis Bank were trading at ₹869.10 apiece on the BSE on Tuesday, down 0.07% over its previous closing price.