Mumbai: India Ratings & Research (Ind-Ra) has affirmed the long-term issuer and instrument ratings of four Kerala-based private sector banks. Federal Bank (FBL) has been affirmed at ‘AA-‘, South Indian Bank (SIB) at ‘A+’, Catholic Syrian Bank (CSB) at ‘BBB’ and Dhanlaxmi Bank (DLB) at ‘BBB-‘. The outlook on all the four banks is stable.
The affirmations reflect the banks’ adequate buffers to absorb mounting credit costs, together with their stable retail funding franchises and no noticeable refinancing pressure. The buffers are strongest for FBL and SIB – these banks are able to absorb Ind-Ra’s ‘stressed’ credit cost assessments without any significant impairment to equity. CSB and DLB are more vulnerable to asset quality pressures during the current downturn due to weak profitability and some structural weaknesses, but their ratings benefit from recent additions to common equity and reduced single-name concentration levels.
The current performance of the four banks remains under pressure due to cyclical stress-largely arising from corporate loan assets. They continue to increasingly focus on retail and SME clients, where asset quality is fundamentally driven by the quality and adequacy of collateral (mainly gold or real estate). In the absence of a sharp drop in collateral values, Ind-Ra’s base case loss expectations for these businesses in these banks are lower than that of other assets.
India Ratings & Research (Ind-Ra) is a leading rating agency committed to providing the India’s credit markets with accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open & balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade gaining significant market presence in India’s fixed income market.
Ind-Ra currently maintains coverage of corporate issuers, financial institutions, which includes banks and insurance companies, Finance & leasing companies and managed funds, Urban Local Bodies and Project Finance.
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