Risk of sharp deterioration in private banks’ asset quality has receded: Moody’s

‘Asset performance at top 5 private banks better than expected in period till Dec.’

AHMEDABAD, GUJARAT, 09/11/2016: A deserted look at HDFC Bank and ATM Machine in Ahmedabad on November 09, 2016. As yesterday night Government announce new currency policy. Photo: Vijay Soneji

The Indian government’s policy measures to support bank borrowers have softened growth in non-performing loans (NPLs), thus averting the risk of a sharp deterioration in asset quality, Moody’s Investors Service said on Friday. It added that the risk of a sharp deterioration in private banks’ asset quality had also receded.

“Ample domestic liquidity, loose monetary policy, moratoriums on loan repayments and government-guaranteed loans to small businesses have supported Indian banks’ asset quality,” said Alka Anbarasu, a Moody’s vice president and senior credit officer. “As a result, restructured loans have not increased as much as we expected at the onset of the pandemic.” Moody’s said the asset performance at India’s largest private sector banks — HDFC Bank, ICICI Bank, Axis Bank, IndusInd Bank and IDBI Bank — was better than its expectations in the nine months ended December. The NPL ratios of IndusInd and HDFC Bank rose 48 basis points (bps) and 12 bps to 2.9% and 1.4% at the end of December, respectively, from March.

Those of Axis Bank and ICICI Bank declined 31 bps and 11 bps, respectively, to 4.6% and 5.4%. IDBI’s NPL ratio also fell, although it remained well above 20%, the highest among the six banks.

The banks’ NPL ratios include loans that have become delinquent since the end of August 2020 but are not classified as NPLs because of a pending case in the Supreme Court.

‘Yes Bank more at risk’

On the other hand, Yes Bank, which was rescued in 2020, is faced with greater asset risks than peers, although its capitalisation, liquidity and funding have improved, Moody’s said.

Overall, a recovery in India’s economy in 2021 would support borrowers’ debt-servicing capability after the support measures expire. “As a result, a sharp deterioration in asset quality is now less likely than Moody’s previously anticipated,” the credit rating agency added.