Moody's assigns Ba3 (hyb) to HDFC Bank's proposed AT1 capital securities
Aug 16, 2021
Singapore, August 16 : Moody's Investors Service on Monday assigned a Ba3 (hyb) rating to HDFC Bank Ltd's proposed USD-denominated, undated, non-cumulative and subordinated additional tier 1 (AT1) capital securities.
The Ba3 (hyb) rating is three notches below HDFC Bank's baa3 baseline credit assessment (BCA) and adjusted BCA, reflecting the probability of impairment associated with non-cumulative coupon suspension as well as the likelihood of high loss severity when the bank reaches the point of non-viability.
The principal and any accrued but unpaid distributions on these capital securities would be written down, partially or in full, if HDFC Bank's common equity tier 1 (CET1) ratio is at or below 5.5 per cent any time prior to October 1 and 6.125 per cent from and including October 1.
In such a scenario, said Moody's, the write-down may be temporary and the amount could be reinstated subject to the Reserve Bank of India's (RBI) conditions.
The principal and any accrued but unpaid distribution on these capital securities would also be written down, partially or in full, if the RBI determines that without such a write-down, the bank would become non-viable, or a public sector capital injection is needed without which the bank would become nonviable.
In addition, the AT1 securities will be written down in full if the RBI decides to reconstitute or amalgamate the bank with another bank, pursuant to Section 45 of the Banking Regulation Act 1949. In both these scenarios, the write-down will be permanent.
Furthermore, HDFC Bank as a going concern may choose not to pay interest on these securities on a non-cumulative basis. However, a common share dividend stopper applies if an interest payment is missed, said Moody's.
There is limited upward rating momentum over the next 12 to 18 months in view of the negative outlook on both HDFC Bank's deposit ratings (Baa3 negative) and India's sovereign rating (Baa3 negative).
A lowering of HDFC Bank's BCA will lead to a rating downgrade of the proposed AT1 securities. The bank's BCA will be lowered if a sharp deterioration in asset quality and profitability hurts its capitalisation.
Moody's said the proposed AT1 security ratings could also be downgraded if India's sovereign rating is downgraded, given the high inter-linkages between the bank's creditworthiness and that of the sovereign.
HDFC Bank reported total assets of Rs 17.5 lakh crore as of June 30.
