India Ratings affirms lnduslnd Bank rating; outlook stable

Mumbai (Maharashtra) [India], June 25 : India Ratings and Research (Ind-Ra) has affirmed Induslnd Bank Limited's long-term issuer rating at 'IND AA+' with a stable outlook and short-term issuer rating at 'IND A 1 +'.
"The ratings reflect the following factors: the improving deposit and liability profile; the easing of the agency's concerns on asset quality metrics and the ability of the bank to absorb stresses, including COVID-19 impact, and strengthened capital buffers," India Ratings and Research, a Fitch Group company, said in the rating report.
The rating also factors in Induslnd Bank Limited's leadership position in certain asset classes (such as vehicle financing and microfinance) and its robust pre-provision operating buffers.
Induslnd Bank Limited (IBL) has a granular loan portfolio, a diversified income profile, and an experienced management team; all these factors, in the agency's opinion, are the bank's key strengths, the rating agency said.
The bank's extant three-year strategy envisages a significant role for digital banking across banking functions and significant improvements in its liability profile so as to close the gap between the bank and its larger peers, it said.
The AT1 bonds rating reflects the bank's strong standalone credit profile, along with its ability to service coupons and manage principal write-down risk on its debt capital instruments.
To arrive at the rating, Ind-Ra has considered the discretionary component, coupon omission risk and the write-down/conversion risk as key parameters.
The agency recognises the unique going-concern loss-absorption features that these bonds carry and differentiates them from the bank's senior debt, factoring in a higher probability of an ultimate loss for investors in these bonds. Ind-Ra envisages coupon deferrals and principal write-down risk as a remote possibility in view of the bank's adequate revenue reserve and operating buffers.
On rating sensitivities, India Ratings said, substantial growth in the franchise and scale, continued granularisation of deposits and liability profile while sustaining the capital and operating buffers and lowering credit costs sustainably could result in a positive rating action.
Negative factors include a "weakening of the liability profile, which could be on account of (a) higher growth in wholesale funding or material gaps in the asset-liability tenors (b) ceding of the franchise (c) significantly higher-than-expected deterioration in the asset quality, which could dilute the capital buffers, could lead to a negative rating action."
Any material impact on Tier I capitalisation levels with CET I capital falling below 12 per cent on a sustained basis, net NPA to CET I capital rising sharply to exceed the levels reported by the large private sector banks, significant erosion of the franchise (sustained reduction of market share in advances or deposits) or a weakening of the bank's competitiveness in the industry could also result in a negative rating action, the rating agency said.