S&P cuts ratings of Axis, four NBFCs

S&P MAY LOWER AXIS’S RATING IF STRESSED ASSETS RISE BEYOND SYSTEM AVERAGE

MUMBAI: S&P Global Ratings on Friday downgraded ratings of Axis Bank and four Indian nonbank financiers, citing worsening operating conditions as a result of the Covid-19 pandemic.

Axis Bank’s issuer credit rating was cut one notch to BB+ or to junk status. S&P said that the rating action reflects its expectation that heightened economic risks facing India’s banking system will affect the bank’s asset quality and financial performance.

“While Axis’ asset quality is superior to the Indian banking sector average, its level of nonperforming assets (NPAs) will likely remain high compared to international peers. Nevertheless, we expect the bank to maintain its strong market position and adequate capitalisation,” said S&P.

As on March 31, 4.86% of the bank’s total loans were non-performing, 14 basis points (bps) lower from the December quarter of 2019-20. The rating agency said it could lower the ratings on Axis

Bank if the bank’s stressed assets rise significantly beyond the system average over the next few quarters. It added that an upward revision will be contingent upon its asset quality turning significantly superior to that of domestic peers and commensurate with international peers over the next 18 months.

The four non-banking financial companies (NBFCs) whose ratings were downgraded are Shriram Transport Finance Co. Ltd, Bajaj Finance Ltd, Manappuram Finance Ltd, and Power Finance Corp. Ltd.

“We expect the asset quality of Indian finance companies to deteriorate, credit costs to rise, and profitability to decline over the next 12 months. Given the large acceptance of moratorium by borrowers, funding and liquidity problems could worsen for these companies,” said S&P on Friday.