Moody’s Mood Swing: IndusInd’s Ratings Hold, But Outlook Dips Into the Negative Zone

Foreign credit rating agency Moody's Ratings this morning reaffirmed IndusInd Bank's long-term foreign currency and local currency deposit ratings of Ba1, but changed its outlook on the struggling lender to negative. This comes at a time when concern about the bank's internal financial controls is running high, especially following recent revelations of accounting mispractices in derivative transactions.

Moody's noted that the potential downgrade review of IndusInd's Baseline Credit Assessment (BCA) reflects the potential negative impact of such control failures, combined with rising stress in the bank's unsecured retail loan portfolio. The agency warned that such concerns could negatively affect the bank's profitability, capital, and funding in the future.

The rating agency acknowledged IndusInd’s strong capital position and stable funding base, which are expected to help mitigate immediate risks. However, Moody’s noted that the bank’s asset quality has come under pressure, with its gross non-performing loans (NPL) ratio rising to 2.3% by December 2024, up from 1.9% in March 2024. The increase was primarily driven by higher NPLs in the microfinance and credit card segments.

Apart from this, leadership problems have concerned investors since there was only a one-year renewal of the bank's CEO that was sanctioned by the Reserve Bank of India and the recent resignation of the CFO.

Moody's also stated that although the short-term effect on profitability and capital is manageable, a dramatic decline in funding or liquidity would be negative for credit. The ability of the bank to deal with cracks in financial controls and stabilize asset quality will determine future rating actions.

Source: NewsDrum