S&P Global Ratings today reaffirmed its ‘BBB-‘ long-term and ‘A-3’ short-term issuer credit ratings on ICICI, it said in a release.
“At the same time, we reaffirmed our ‘BBB-‘ long-term issue rating on the bank’s senior unsecured notes,” S&P Global Ratings said.
On a stable outlook, it said ICICI will maintain a strong market position in the Indian banking sector.
“We expect the bank’s asset quality to be better than the Indian sector average and better than international peers with similar ratings. The bank should maintain good capitalization over the next 12-18 months, supported by healthy earnings.
The rating firm said the bank has sufficient capital buffers to support its above-average growth.
It is also estimated that risk-adjusted capital ICICI Bank’s (RAC) ratio will marginally drop below 10 per cent due to strong credit growth from 10.4 per cent by March 31, 2022.
“Despite the decline, its capitalization is likely to remain better than most Indian peers. The decline will reflect credit growth of 17-20 per cent, which we expect amid a strong economic recovery. Although the return on assets remains healthy at 1.8- are likely to be- 1.9 per cent, they will not be sufficient to maintain a RAC ratio of more than 10 per cent.
S&P Global Ratings said, “There may be some increase in ICICI’s earnings from stake sale in subsidiaries. The timing and quantum of profit from such sale is uncertain.”
On the asset quality front, it said the bank’s asset quality is likely to improve despite uneven economic recovery and macroeconomic challenges in India.
“In our Aadhaar case, weak credit of the bank, defined as non-performing loans (NPL) and restructured loans will grow to 3.0-3.5 per cent of total loans in the next 12 months, from around 4.6 per cent as on March 31, 2022. Broadly stable credit conditions will support this. Credit cost should remain at around 1 per cent over the next 12-18 months.”
ICICI’s asset quality should continue to be better than the Indian sector average, following gradual improvements over the years.
ICICI has largely provided for old weak loans, while weak loans related to the pandemic are also manageable. The global rating agency said improved operating conditions in India, along with tighter risk management, should help it sustain the decline in its credit costs and weak loans.
On the impact of higher inflation and rising interest rates, S&P Global Ratings said it should be manageable.
ICICI’s superior customer profile and underwriting relative to the Indian banking sector will potentially limit losses from the impact of geopolitical tensions. Retail loans account for about 53 per cent of the bank’s loan portfolio. These are well diversified into home loans, vehicle loans and unsecured loans including personal loans and credit cards.
Since a major part of ICICI Bank’s retail loans are for relatively low-risk home loans, and a large portion within home loans are for salaried professionals, who have low loan-to-value ratios, this is due to higher interest rates and higher interest rates. Provides a cushion against less disposables. income due to inflation.
On the other hand, it said: “We may downgrade the rating on ICICI if its asset quality deteriorates, reversing the reforms in the last 12-18 months. This may happen if the economic recovery in India derails, resulting in pain in the asset quality of the bank or if the bank’s above-average credit growth results in higher latent risk.”