S&P gives HDFC Bank highest standalone credit profile rating

Out of the top four Indian Banks in the list,S&P rated HDFC Bank highest on standalone credit profile (SACP) and offered it ‘BBB+’ while giving a ‘BBB-’ to Axis Bank. State Bank of India (SBI) and ICICI Bank have been assigned ‘BBB’.

The agency rated HDFC Bank’s business position ‘strong’,its capital and earnings and risk position ‘adequate’,and its funding and liquidity position to be ‘above average and strong’. “Customer deposits represent more than 90 per cent of its funding base. Its savings and current deposits,which are inherently low cost and stable,have been stable at about 50 per cent of the bank’s deposit base,” said the report adding,“Its liquidity ratios are noticeably stronger than peers.”

Axis Bank lagged SBI on two counts. While its capital and earnings stood ‘moderate’,its liquidity situation was only ‘adequate’.

While ICICI Bank lagged HDFC Bank on its funding and liquidity position which stood at ‘average’ and ‘adequate’ respectively,SBI lagged HDFC Bank on capital and earnings position which stood at ‘moderate’.

Regarding a ‘moderate’ assessment of capital and earnings for SBI,S&P said that it reflects their projection that pre-diversification risk-adjusted capital (RAC) ratio of the bank will stay within 5-7 per cent over the next 12-18 months despite a downward trend.

“SBI’s financial performance in the fiscal year ended March 31,2011,was worse than our expectation. We expect SBI’s profitability to remain lacklustre in fiscal 2012,leaving its retained earnings barely sufficient to sustain its current asset growth. The bank’s credit provisioning costs are likely to rise further,given an unfavorable inflationary environment,” said the report and added,“We do not expect the bank to be able to withstand the stress associated with a sovereign default.”