Axis Bank upgraded to 'BBB-/A-3' on Improving Asset Quality, Outlook Stable

On Nov. 21, 2022, S&P Global Ratings raised its long-term and short-term issuer credit rating on Axis Bank Ltd. to 'BBB-/A-3' from 'BB+/B'. The outlook on the long-term rating is stable. We also raised the long-term issue rating on the bank's senior unsecured notes to 'BBB-' from 'BB+'.

Our upgrade reflects Axis Bank's good asset quality and our expectation that the bank will maintain that over the next one to two years. India's robust economic growth should support borrowers' creditworthiness. We forecast Axis Bank's weak loans, defined as nonperforming loans and standard restructured loans (including loans restructured due to COVID), could decline to 2.5%-3.0% of total customer loans by end-March 2023, from 3.7% as of March 31, 2022. COVID restructured loans have also fallen to 0.4% of total loans as of end-September 2022, from 0.6% as of Dec. 31, 2021. Credit costs could likely stay below 1% while asset quality risks remain contained.

In our view, Axis Bank can absorb the impact of higher inflation and interest rates. The small and midsize enterprise sector and low-income households are vulnerable to rising interest rates and high inflation. However, in our base case of moderate interest-rate hikes, these risks are manageable for Axis Bank. The bank's ample provisioning and capital buffers can help absorb a moderate rise in credit stress. The bank's tighter risk management should also support credit quality. Axis Bank's asset quality is likely to stay better than the Indian sector average and comparable to that of similar rated international peers over the next two years. This follows gradual improvements in recent years with a resolution and recovery of legacy weak loans.

The stable outlook on Axis Bank reflects our view that the bank will maintain its strong market position in India's banking sector over the next two years. The bank's capitalization should stay comfortable, notwithstanding an expected decline from the acquisition of Citigroup Inc.'s retail portfolio in India. Steady growth in Axis Bank's retail deposit base as well as good access to capital markets should support its funding profile.

We may lower the ratings on Axis Bank if the bank's asset quality deteriorates sharply. This could happen if economic conditions in India deteriorate, resulting in asset quality stress for the bank.

An upgrade of Axis Bank is unlikely over the next one to two years. This is because an upgrade will require an improvement in the bank's financial profile as well as the sovereign credit rating on India.

Shares of Axis Bank Limited was last trading in BSE at Rs. 869.70 as compared to the previous close of Rs. 859.25. The total number of shares traded during the day was 265681 in over 8480 trades.

The stock hit an intraday high of Rs. 871.10 and intraday low of 858.90. The net turnover during the day was Rs. 230193304.00.

Source : Equity Bulls

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AxisBank INE238A01034 RatingUpdate SandPGlobalRatings StableOutlook