Moody’s Ups Outlook On IndusInd Bank To Stable, Affirms Overall Rating

Moody's Investors Service on Monday revised upwards its outlook on IndusInd Bank Ltd. to 'stable' from 'negative' while affirming its rating.

The change in the outlook is driven by improvement in its funding and capital, and the marginal hit on asset quality during the pandemic, Moody's said in a note.

The bank's long-term local and foreign currency deposit ratings have been affirmed at Ba1, while the baseline credit assessment and adjusted BCA have been affirmed at Ba2, it said.

Moody's said despite the economic disruption, the asset quality deterioration was moderate for the bank, with gross and net nonperforming loan ratios, after including those benefiting from the Supreme Court order on loan classification, being at 2.93% and 0.22%, respectively, as of December 2020, compared with 2.18% and 1.05% a year earlier.

The bank raised capital, resulting in a significant increase in the core equity tier 1 ratio to around 15% from 12.1% at the end of 2019, it said.

Profitability deteriorated because of increase in credit costs, but pre-provision remains one of the highest within rated Indian banks. Profitability will gradually improve as credit costs normalise in 2021, it said.

The bank's funding quality is weaker when compared with other large private sector lenders, but the quality has been improving over the past 12 months, with the share of retail deposits in total funding increasing to 27% at December-end 2020 from 24% as of March 31 last year.

A further improvement is possible in the same over the next 12-18 months as the management is prioritizing improvements in the funding mix over loan growth, Moody's said.

A significant improvement in its funding, where the share of sticky retail deposits in its funding and depositor concentration becomes comparable to that of other large rated private sector banks in India, and credit costs normalize to pre-pandemic levels can lead to a ratings upgrade, it said.

However, ratings could be downgraded if there is a deterioration in its funding or asset quality, such that either NPL ratio or credit costs increase significantly from the current levels, it added.