Fitch affirms Axis Bank's IDR at BB-plus with stable outlook, downgrades VR to bb
May 02, 2020
Singapore, May 2 : Fitch has affirmed Axis Bank's long-term issuer default rating (IDR) at BB-plus with a stable outlook but downgraded the bank's viability rating (VR) by one notch to bb from bb-plus.
The rating actions are driven by rapid deterioration in the operating environment for banks in India following the coronavirus pandemic and measures to contain its spread.
Fitch has cut its forecast for India's GDP growth in the financial year ending March 2021 (FY21) to 0.8 per cent from a pre-pandemic forecast of 5.1 per cent (FY20: 4.9 per cent).
"The revised estimate highlights the impact that the sharp slowdown in business and consumer activity is likely to have across sectors, which will create fresh asset-quality challenges for Indian banks," said Fitch.
Fitch lowered the operating environment score for Indian banks to bb from bb-plus in March while keeping it on a negative outlook due to the uncertainty surrounding the severity and duration of the pandemic and the associated effects on India's banks from restrictions on economic activity.
This is despite relief measures implemented by the authorities to support the economy and protect borrowers, which indirectly benefit the banks.
Fitch said the downgrade of Axis's VR highlights heightened risks to its asset quality and earnings from the ongoing disruption in business and consumer activity, which it expects to continue well beyond the lockdown in India.
Uncertainty about how severely key credit metrics will be affected and the potential for further negative impact on Axis's intrinsic creditworthiness means there is a risk of further negative action on the VR.
However, Axis's better income and capital buffers will support its VR longer than lower-rated peers with weaker loss-absorption buffers.
The stable outlook on IDR mirrors stable outlook on India's sovereign IDR and reflects expectation of limited downside pressure on the IDR in the foreseeable future, provided the sovereign's ability and propensity to support the bank remains intact.
