Fitch Ratings has affirmed ICICI Bank's ratings at 'BB+' with a negative outlook and retained the lender's viability rating at BB.
The negative outlook comes despite the agency recently revising upwards the operating environment outlook of domestic banks to stable from negative, citing better than expected recovery in business and economic activity following the COVID-19 second wave.
Economic momentum and regulatory measures should support modest improvements in the domestic banks' financial profiles over the next 12-24 months, even though challenges remain the agency said in a late Monday note.
Listing the key rating drivers, the agency said ICICI's long term rating of 'BB+' is support driven and linked to India's sovereign rating (BBB-/Negative).
This is due to its size and systemic importance, which stem from its large and growing market share (6.1 per cent of system assets and 5.5 per cent of deposits in FY20 and a sizeable retail deposit base).
ICICI is a systemically important bank, and the state has a record of supporting such banks, although ICICI has not required support to date. And the March 2020 rescue of Yes Bank, a mid-sized private-sector bank, reinforces our view.
The negative outlook on the ratings mirrors the agency's outlook on the sovereign rating, it said.
In the view of the agency, the bank's risk profile has a stronger impact than the operating environment on the assigned viability rating than what the weighting would suggest.
The bank's appetite for risk, even though it is lower than before the pandemic, has weighed on its financial metrics in the past several years, particularly in terms of asset quality and earnings.
Photograph: Danish Siddiqui/Reuters
