Business

IIE DIGITAL DESK : Moody’s Investors Service has placed IndusInd Bank’s Baseline Credit Assessment (BCA) under review for a potential downgrade, citing concerns over the bank’s asset quality and liquidity position. This move reflects Moody’s apprehension about the bank’s ability to maintain its current credit profile amidst emerging challenges.

The review was prompted by a series of developments that have raised questions about IndusInd Bank’s financial stability. Notably, the bank reported a significant increase in its non-performing loans (NPLs), particularly within its retail portfolio. As of December 2024, the gross NPL ratio had risen to 2.3%, up from 1.9% in March 2024, with microfinance and credit card segments experiencing the highest stress. Moody’s anticipates further deterioration in asset quality but expects the bank’s proactive provisioning to mitigate the impact on profitability and capital.

In addition to asset quality concerns, liquidity issues have also come to the forefront. The bank's reliance on wholesale funding has increased, leading to higher funding costs. To address liquidity pressures, IndusInd Bank raised ₹11,000 crore through short-term certificates of deposit at rates up to 7.90%, slightly higher than previous rates. While this move provided immediate liquidity, it also highlighted the bank’s elevated funding costs.

Moody’s has indicated that a downgrade of the BCA could occur if the bank’s asset quality continues to deteriorate or if liquidity pressures intensify. However, the agency also noted that the bank’s strong capital position and access to diverse funding sources provide some buffer against these challenges.

The review underscores the importance of robust risk management practices in maintaining creditworthiness. IndusInd Bank's ability to address these concerns effectively will be crucial in determining the outcome of Moody’s assessment.