S&P World Rankings downgrades Axis Financial institution on elevated financial dangers for banks

S&P World Rankings on Friday lowered its scores on Axis Financial institution as a result of elevated financial dangers for banks working in India.

S&P additionally put Indian Financial institution scores on ‘Credit score Watch’ as a result of it expects a excessive threat that the general public sector financial institution’s credit score profile might weaken over the approaching quarters as a result of COVID-19 in addition to the merger with the weaker Allahabad Financial institution.

“We lowered our scores on Axis to mirror our expectation that heightened financial dangers dealing with India’s banking system will have an effect on the financial institution’s asset high quality and monetary efficiency. Whereas Axis’ asset high quality is superior to the Indian banking sector common, its degree of non-performing property (NPAs) will seemingly stay excessive in comparison with worldwide friends’,” S&P mentioned.

It expects the financial institution to take care of its sturdy market place and ample capitalisation. The steady outlook displays our view that our scores on Axis already think about some deterioration within the financial institution’s asset high quality and efficiency over the subsequent 12 months.

The company mentioned financial situations have turned hostile for Indian banks as a result of COVID-19 and drastic efforts to curtail the unfold of the virus have resulted in a pointy financial contraction.

“The federal government’s stimulus bundle, with a headline quantity of 10 per cent of GDP, has about 1.2 per cent of direct stimulus measures, which is low relative to international locations with related financial impacts from the pandemic. The remaining eight.eight % of the bundle consists of liquidity assist measures and credit score ensures that won’t immediately assist progress,” S&P added.

It has forecast a 5 % contraction within the financial system in fiscal 2021.

S&P expects powerful working situations to result in an increase in non-performing loans (NPLs), credit score prices, and delays in recoveries for the banking system.

“In our base case, we count on the weak property of Indian banks to shoot as much as 13 -14 % of gross loans by March 31, 2021. Our forecast is increased than the height of 11.6 % witnessed in fiscal 2018, and about eight.5 % estimated as on March 31, 2020,” S&P mentioned.

The company mentioned it anticipates the decision of weak property to be delayed till a minimum of fiscal 2022. Consequently, banks will seemingly be saddled with a big inventory of weak loans in fiscal 2022 too.

“Steps taken by the federal government and the central financial institution ought to present some respite by delaying recognition of among the weaker loans, in our view,” S&P famous.

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