S&P Global Ratings has recently degraded the rating of Axis Bank and Bajaj Finance placing both under the category of below investment grade. It has done so considering the higher risks that these banks are facing due to the fallout of Pandemic on India’s economy.
The rating agency has also downgraded Indian Bank rating to ‘credit watch’ as it expects PSUs credit profile to become weak in coming quarters due to the Pandemic repercussions on the economy and because of it being merged with ‘Allahabad Bank’.
S&P said, “We lowered our ratings on the Axis to reflect our expectation that heightened economic risks facing India’s banking system will affect the bank’s asset quality and financial performance”.
It added, “While Axis’ asset quality is superior to the Indian banking sector average, its level of non-performing assets will likely remain high compared to international peers”.
The rating agency has maintained its stable outlook on Axis Bank but degraded its issuer credit rating to “BB+/stable/B” from “BBB-/negative/A-3”, along with that of its Dubai International Financial Centre branch, GIFT city branch, Hong Kong branches and Bajaj Finance. “BBB-” rating indicates investment grade or junk.
Shriram Transport Finance’s issuer credit rating has been downgraded to “BB-/watch negative/B” from “BB/negative/B” and its senior secured rating stance has been changed to “BB-/watch negative” from “BB”.
According to S&P, “India’s economy is in deep trouble. Difficulties in containing the virus, an anemic policy response, and underlying vulnerabilities, especially across the financial sector, are leading us to expect growth to fall by 5 per cent this fiscal year before rebounding in 2021”.
It commented, “The tough operating conditions would lead to a rise in non-performing loans (NPLs), credit costs, and delays in recoveries for the banking system. Steps taken by the government and the central bank should provide some respite by delaying the recognition of some of the weaker loans, in our view”.