Fitch affirms ICICI Bank’s issuer default rating at ‘BB+’; outlook negative

Fitch Ratings has affirmed private lender ICICI Bank’s long-term issuer Default Rating (IDR) at ‘BB+’ with negative outlook.

The rating agency also assigned ICICI a Government Support Rating (GSR) of ‘bb+’.

Rating for IDR at ‘BB+’ is support driven and linked to India’s sovereign rating (BBB-/Negative).

The Government support rating is one notch below the sovereign, reflecting expectation that there is a moderate likelihood of extraordinary state support to ICICI, if required. This is due to its size and systemic importance, which stem from its large and growing market share.

It had 6.1 per cent share in system assets and 5.5 per cent in deposits in the financial year ended March 2020 (FY20)) and a sizable retail deposit franchise.

However, the likelihood of support for ICICI to be lower than for large state banks that have GSRs of ‘bbb-‘ due to ICICI’s private ownership, but to be similar to that of other large private banks.

Recently, Fitch revised the operating environment (OE) outlook of Indian banks from “negative” to “stable”, reflecting a better recovery than expected in business and economic activity following the Covid-19 pandemic’s second wave. The ‘bb’ OE score is higher than the implied score of ‘b’, reflecting the view that India’s economy will generate sustainable business growth opportunities.

Economic momentum and regulatory measures should support modest improvements in Indian banks’ financial profiles over the next 12-24 months, even though challenges remain.

ICICI is a systemically important bank and the state has a record of supporting such banks, although ICICI has not required support to date. The March 2020 rescue of Yes Bank, a mid-sized private-sector bank, reinforces its agency’s view.

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