Fitch Ratings affirms Axis Bank's IDR at 'BB+' with negative outlook

Credit rating agency Fitch Ratings has affirmed Axis Bank Limited's Long-Term Issuer Default Rating (IDR) at 'BB+' with a negative outlook. The agency has also affirmed the bank's Viability Rating (VR) at 'BB'.

"In line with the updated Bank Rating Criteria, we have assigned Axis a Government Support Rating (GSR) of 'bb+'," wrote Fitch Ratings in an official statement.

Fitch has recently revised the outlook on the operating environment (OE) for Indian banks to stable from negative, reflecting a better recovery than it had expected in business and economic activity following the second wave of the COVID-19 pandemic in the country.

The 'BB' OE score is higher than the implied score of 'B', reflecting the agency's view that India's economy will generate sustainable business growth opportunities.

Axis' Long-Term IDR of 'BB+' is support driven and linked to India's sovereign rating (BBB-/Negative), explained the agency. The rating is driven by Axis Bank's GSR of 'bb+', which is higher than its VR.

The GSR is one notch below the sovereign and reflects Fitch's expectation that there is a moderate likelihood of extraordinary state support to Axis Bank, if required. Fitch states that this is due to Axis bank's size and systemic importance, which stems from its large and growing market share (5.1 per cent of system assets and 4.6 per cent of deposits at end-March 2020) and a sizable retail deposit franchise.

However, Fitch regards the likelihood of support for Axis to be lower than for large state banks that have GSRs of 'BBB-' due to its private ownership but to be similar to that of other large private banks.

"Nevertheless, Axis is a systemically important bank in our view, 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 Ltd, a mid-sized private-sector bank, reinforces our view," read the statement.

Fitch also noted that the negative outlook on the issuer default rating reflects the outlook on the Indian sovereign IDR.

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