Private lender Axis Bank's shares rose by as much as 2.41% to Rs 666.55 after confirming the bank's long-term issuer default rating IDR at 'BB The ratings agency has maintained 'Negative' on the bank's long-term IDR.
Axis has a long-term IDR of 'BB, which is linked to India's sovereign rating BBB Negative It is driven by its government support rating GSR of 'bb, which is higher than the viability rating of 'bb'.
The GSR is one notch below the sovereign and Fitch believes that there is a moderate likelihood of extraordinary state support to Axis if required. It is due to its size and systemic importance, which stems from its large and growing market share of 5.1% of system assets and 4.6% of deposits at end-March 2020 and a sizeable retail deposit franchise.
However, we do not believe that the likelihood of support for Axis to be lower than for large state due to private ownership, but rather similar to that of other large private banks, Fitch said.
Axis is a systemically important bank in the view of the rating agency, and the state has a record of supporting such banks, although Axis has not required support in the past. The March 2020 rescue of Yes Bank, a mid-sized private-sector bank, reinforces its view.
The 'Negative' outlook on the long-term idr mirrors the outlook on the Indian sovereign IDR. Axis's capitalisation and leverage factor score is unchanged at 'bb' and the outlook is stable. It is reflected by Fitch's expectation that the bank's common equity ratio of Tier 1 CET 1 would remain above 12% in the next two years, supported by improving internal accruals.
Axis' earnings and profitability factor score is maintained at bb' with a stable outlook to reflect Fitch's expectations that the four year average operating profit risk-weighted assets OP RWA ratio will reach Fitch's 1.25% threshold by FY 22 and remain above that level. Axis' OP RWA increased to 2.2% in 1 HFY 22 from 1.4% in FY 21. We don't see significant risks to earnings in the next two years but we believe that loan-impairment costs will be instrumental in driving OP RWA, especially when the forbearance unwinds.
Axis' deposit franchise has proven resilient through difficult operating conditions, according to the statement. The bank's stable funding and liquidity profile benefits from its retail-oriented and local-currency dominated deposit franchise and wide reach.
The bank's gross loans customer deposits ratio of 87% has been down since FY15, but that could change in the near term as loan growth gains momentum. The bank's low-cost deposit ratio of 44% at end of 1 HFY 22 compares well with that of peers, while its stable liquidity position is reflected in its liquidity coverage ratio of 121% at the end of 1 HFY 22. The credit rating agency expects both variables to be normal over the medium term.
The private sector bank offers a wide range of financial services to customers, including large and mid-Corps, MSME, agriculture and retail businesses.
The private bank's net profit went up 86.21% to Rs 3,133. Total income increased to Rs 20,134 by 32 crore on a 2.99% increase in total income. 39 crore were in Q 2 FY 22 over Q 2 FY 21.