Moody’s downgrades IndusInd Bank’s outlook to negative

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Published: February 12, 2020 12:15:13 AM

The ratings firm said that the bank has a relatively higher exposure to the stressed real estate sector, compared to other banks, at around 8% of its loan book as on 31 December 2019.

“Tight refinancing conditions for borrowers were a key trigger for the crystallisation of non-performing loans,” the ratings agency said.“Tight refinancing conditions for borrowers were a key trigger for the crystallisation of non-performing loans,” the ratings agency said.

Ratings agency Moody’s on Tuesday downgraded private lender IndusInd Bank’s outlook to negative from stable to account for the risk of further asset quality deterioration. The firm noted that the bank has seen its asset quality worsen over the past few quarters, especially in the corporate sector.

Moody’s has also affirmed the bank’s domestic and foreign currency bank deposit ratings of Baa3/P-3, foreign currency senior unsecured rating of Baa3, foreign currency senior unsecured MTN (medium-term note) programme rating of (P)Baa3, and Baseline Credit Assessment (BCA) and adjusted BCA of ba1.

The ratings firm said that the bank has a relatively higher exposure to the stressed real estate sector, compared to other banks, at around 8% of its loan book as on 31 December 2019.

“While there have been no NPLs in this segment so far, this exposure to the property market remains a source of risk, given the broader stress in the real estate sector,” it said, adding that the bank could also be negatively impacted by the ongoing stress in the telecom sector.

As of Q3FY20, the bank’s gross non-performing assets (GNPA) stood at Rs 4,578 crore, compared to Rs 4,370 crore in the September quarter. Compared to the year-ago period, the gross NPA more than doubled from Rs 1,968 crore. The share of gross NPA stood at 2.18%, as against 2.19% in the September quarter. The GNPA in the corporate segment rose to Rs 3,050 crore from Rs 2,932 crore in Q2FY20.

“Tight refinancing conditions for borrowers were a key trigger for the crystallisation of non-performing loans,” the ratings agency said.

The ratings agency said it was unlikely to upgrade the bank’s ratings over the next 12-18 months. If the bank maintains its NPA ratios at current levels over the next 12-18 months, while demonstrating a decrease in credit costs to the levels seen before FY19, the ratings may be upgraded, the agency added.

Meanwhile, there could be a downgrade in the baseline credit assessment (BCA) and adjusted BCA if there is a deterioration in asset quality, such that either NPA ratios or credit costs increase significantly from current levels, or if there is a material reduction in profitability at the pre-provision income level.

Shares of IndusInd Bank traded at Rs 1292.20, up 1.31% from the previous close on the BSE.

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