Moody’s assigns B1(hyb) rating to Axis Bank’s proposed AT-I capital bonds

Moody’s on Monday rated Axis Bank’s proposed additional tier I capital bonds, as part of its global medium term note (GMTN) programme, three notches below its baseline credit assessment (BCA) and adjusted BCA, on the back of likelihoods of impairment. The global rater has assigned B1(hyb) rating to Axis Bank’s GIFT City branch’s proposed USD-denominated additional tier I bonds.

“The B1(hyb) rating and (P)B1 programme rating is three notches below Axis Bank Ltd’s ba1 Baseline Credit Assessment (BCA) and Adjusted BCA, reflecting the probability of impairment associated with non-cumulative coupon suspension, as well as the likelihood of high loss severity when the bank reaches the point of non-viability,” Moody’s said. The principal and any accrued but unpaid distribution on these capital securities would also be written down, partially or in full, if the RBI determines that without such a write-down, the bank would become non-viable, or a public sector capital injection is needed without which the bank would become non-viable, it added.

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“In addition, the AT1 securities will be written down in full if the RBI decides to reconstitute or amalgamate the bank with another bank, pursuant to Section 45 of the Banking Regulation Act, 1949. In both these scenarios, the write-down will be permanent,” it said further. Moody’s said in case the common equity tier I (CET1) ratio of the bank is at or below 5.5 per cent at any time before October 1, 2021 and 6.125 per cent from and including this date, the principal and any accrued but unpaid distributions on these capital securities would also be written down, partially or in full.

In such a scenario, the write-down may be temporary, and the amount could be reinstated subject to the Reserve Bank of India’s (RBI) conditions. “Furthermore, Axis Bank, as a going concern, may choose not to pay interest on these securities on a noncumulative basis. However, a common share dividend stopper applies if an interest payment is missed.” Earlier in the day, Axis Bank said it has started issuing debt securities under its Rs 35,000 crore-debt raise plan announced earlier this year.

In April, the private sector lender had said that its board had approved a capital raise proposal up to Rs 35,000 crore by issuing various debt instruments in Indian or foreign currency in domestic/overseas markets in one or more tranches. The issuance is part of the existing global medium term notes (GMTN) programme of the bank, it said. The ratings agency said the ratings on these securities will change with an upgrade or downgrade on bank’s baseline credit assessment (BCA).

Axis Bank’s BCA could be upgraded if there is an improvement in asset quality, as reflected in the bank being able to maintain credit costs below its long-run average, it added. It could be downgraded if there is a significant weakening in its asset quality, with negative implications on capital and profitability, or if funding weakens as reflected by a deterioration in retail deposits, it said further.