Rating Rationale
January 17, 2020 | Mumbai
Axis Bank Limited
'CRISIL AAA/Stable' assigned to Infrastructure Bonds
 
Rating Action
Rs.5000 Crore Infrastructure Bonds CRISIL AAA/Stable (Assigned)
Tier I Bonds (Under Basel III) Aggregating Rs.7000 Crore CRISIL AA+/Stable (Reaffirmed)
Rs.4000 Crore Tier II Bonds (Under Basel III) CRISIL AAA/Stable (Reaffirmed)
Rs.5000 Crore Tier II Bonds (Under Basel III) CRISIL AAA/Stable (Reaffirmed)
Rs.2500 Crore Tier II Bonds (Under Basel III) CRISIL AAA/Stable (Reaffirmed)
Rs.850 Crore Tier II Bonds (Under Basel III) CRISIL AAA/Stable (Reaffirmed)
Rs.2000 Crore Tier II Bonds (Under Basel III)  CRISIL AAA/Stable (Reaffirmed)
Rs.3000 Crore Infrastructure Bonds/Debenture Issue CRISIL AAA/Stable (Reaffirmed)
Rs.3205 Crore Infrastructure Bonds CRISIL AAA/Stable (Reaffirmed)
Rs.5000 Crore Infrastructure Bonds CRISIL AAA/Stable (Reaffirmed)
Rs.6000 Crore Infrastructure Bonds CRISIL AAA/Stable (Reaffirmed)
Rs.60000 Crore Certificate of Deposits CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
The common independent director on CRISIL's and Axis Bank Limited boards did not participate in the rating committee meeting and the rating process of these instruments.
Detailed Rationale

CRISIL has assigned 'CRISIL AAA/Stable' on Rs 5000 crore infrastructure bonds of Axis Bank Limited (Axis bank) and reaffirmed its 'CRISIL AAA/CRISIL AA+/Stable/CRISIL A1+' rating on the other debt instruments.

The ratings continue to reflect Axis Bank's strong capitalisation, healthy resource profile, and comfortable earnings.  While asset quality is average, comfortable capital position, coupled with demonstrated ability to raise capital and steady pre-provisioning profits cushion the bank's credit risk profile against asset quality risks.

Analytical Approach

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of Axis Bank and its subsidiaries. This is because of majority shareholding, business and financial linkages and shared brand.

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths
*Strong capital position with demonstrated ability to raise capital
Capitalisation is strong, with sizeable networth of Rs 83,875 crore as on September 30, 2019 (Rs 66,676 crore as on March 31, 2019). The Tier-I capital adequacy ratio (CAR) and overall CAR under Basel III were comfortable at 15.25% and 18.45% (including unaudited profits of half year ended September 30, 2019) respectively as on September 30, 2019 (12.54% and 15.84%, respectively, as on March 31, 2019). Capitalisation is also supported by the bank's demonstrated ability to raise equity capital; the bank raised Rs 12,500 crore in quarter ended September 30, 2019 through qualified institutional placement. The healthy networth also provides adequate cushion to support credit growth and maintain adequate cover against net non-performing assets (NPAs). The net worth to net NPA ratio was around 7.5 times as on September 30, 2019 and has improved from 5.9 times as on March 31, 2019. Capitalisation is likely to remain strong over the medium term, supported by expected improvement in cash accrual, demonstrated ability to raise capital, and higher focus on lending better credits with lower risk weightages.

*Healthy resource profile
The resource profile remains healthy, with the share of stable low-cost current and savings account (CASA) deposits at 41% of total deposits as on September 30, 2019 (44% as on March 31, 2019). Although CASA share has witnessed a dip, the overall retail deposits (CASA and less than Rs 2 crore retail term deposits) remain stable at 65.96% as on September 30, 2019. This contributes to competitive cost of deposits and cushions the net interest margin. The bank has a strong focus on increase the CASA share and has been ramping up their branch network to effectively target the retail customer base.
With a network of 4,284 branches (domestic, including extension counters) and a strong digital footprint, the bank is expected to sustain a healthy resource profile over the medium term.

*Strong market position
Axis Bank is amongst the top three private sector banks, and had a market share of around 5% in advances and deposits as on September 30, 2019. Advances had a CAGR of ~17% over the five fiscals through 2019 mainly contributed by stronger growth in retail loans (23% CAGR). Also, the loan portfolio is well balanced with retail loans constituting 52% of loans, followed by corporate (36%) and small and medium enterprise (SME; 12%), as on September 30, 2019. The share of retail portfolio has grown over the years to 52% as on September 30, 2019 from 33% as on March 31, 2013. Further, around 85% of the retail loans are now being sourced by existing customers; which should support healthy growth rates.

The bank has also retained its strong position in the debt syndication business, which continues to support expansion in fee income. With healthy capitalisation, well spread out branch network, diverse product offerings, and a strong digital footprint, market share is expected to improve over the medium term.

 Weaknesses:
*Asset quality performance remains sensitive to stress in the corporate sector
With the recognition of a majority of the corporate stressed loans as NPAs in fiscal 2018, the pace of slippages had reduced in fiscal 2019. However, there has been an uptick in slippages in the current fiscal; slippages stood at 4.0% (annualized) during the six months ended September 30, 2019 as compared to 3.2% for fiscal 2019. Most of the slippages came from the lower rated corporate sector loans.

Gross NPAs as a percentage of total advances declined to 5.03% as on September 30, 2019, from 5.26% as on March 31, 2019 and 6.77% as on March 31, 2018 driven largely by increased recoveries and moderation in fresh NPA additions (as compared to levels seen in the past few fiscals).

Return on assets (RoA) improved to 0.63% for fiscal 2019 from 0.04% previous fiscal supported by lower credit cost. The annualized RoA for the half year ended September 30, 2019 stood at 0.31%, primarily because of one time impact of DTA of Rs 2138 crore.

The ability to manage asset quality, in both the corporate and retail loan portfolios, and maintain profitability will remain key rating monitorables over the medium term.
Liquidity Superior

The bank's liquidity position is comfortable, supported by a strong retail deposit base that forms significant part of the total deposits. Bank's liquidity coverage ratio was 124.7% as on September 30, 2019, against the regulatory requirement of 100% from January 1, 2019. The bank's liquidity also benefits from access to systemic sources of funds such as the liquidity adjustment facility from the RBI, access to the call money market, and refinance limits from sources such as National Housing Bank and National Bank for Agriculture and Rural Development.

Outlook: Stable

CRISIL believes Axis Bank will continue to maintain its strong capital position, healthy resource profile, and comfortable earnings profile over the medium term.

Rating Sensitivity Factors:
Downward Factor
* Higher than expected deterioration in asset quality thereby impacting earnings profile
* Decline in capital adequacy ratios (including CCB) with CET I remaining below 11% on sustained basis.

About the Bank

Axis Bank commenced operations in 1994 as UTI Bank, which was renamed in July 2007, and is now the third-largest private sector bank in India. It was jointly promoted by the administrator of Specified Unit Trust of India Undertaking, Life Insurance Corporation of India Ltd, General Insurance Corporation Ltd, and four public sector undertakings (National Insurance Company Ltd, The New India Assurance Company Ltd, The Oriental Insurance Company Ltd, and United Insurance Company Ltd). As on September, 2019, the bank had a network of 4,284 branches including extension counters, and 17315 automated teller machines (ATMs and recycler machines) across the country.

On standalone basis, the bank reported profit after tax (PAT) was Rs 4,677 crore on total income of Rs 68,116 crore in fiscal 2019, against Rs 276 crore and Rs 56,747 crore, respectively, in fiscal 2018.

On consolidated basis, the bank reported PAT was Rs 5,047 crore on total income of Rs 70,232 crore in fiscal 2019, against Rs  464 crore and Rs 58477 crore, respectively, in fiscal 2018.

Key Financial Indicators (Standalone)
As on/for half year ended Sep 30 Unit  2019 2018
Total assets Rs crore 8,09,294 7,30,546
Total income Rs crore 38,457 31,661
PAT Rs crore 1,258 1,491
Gross NPA (as a % of gross advances) % 5.03 5.96
Overall capital adequacy ratio % 18.45 16.45
Return on assets (annualised) % 0.31 0.41

Key Financial Indicators ((Consolidated))
As on/for  half year ended Sep 30 Unit 2019 2018
Total assets Rs crore 8,21,276 7,43,546
Total income Rs crore 39,295 32,648
PAT Rs crore 1,244 1,600
Return on assets (annualised) % 0.30 0.45

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Note on Tier-I Instruments (under Basel III)
The distinguishing features of non-equity Tier-I capital instruments (under Basel III) are the existence of coupon discretion at all times, high capital thresholds for likely coupon non-payment, and principal write-down (on breach of a pre-specified trigger). These features increase risk attributes of non-equity Tier-I instruments over those of Tier-II instruments under Basel III, and capital instruments under Basel II. To factor in these risks, CRISIL notches down the rating on these instruments from the bank's corporate credit rating. The rating on Axis's Tier-I bonds (under Basel III) has, therefore, been lowered by one notch from its corporate credit rating to CRISIL AA+/Stable, in line with CRISIL's criteria (refer to 'CRISIL's rating criteria for BASEL III compliant instruments of banks').

The factors that could trigger a default event for non-equity Tier-I capital instruments (under Basel III) resulting in non-payment of coupon are: i) the bank exercising coupon discretion; ii) inadequacy of eligible reserves to honour coupon payment if the bank reports losses or low profits; or iii) the bank breaching the minimum regulatory Common Equity Tier-1 (CET I; including Capital Conservation Buffer) ratio. Moreover, given the additional risk attributes, the rating transition for non-equity Tier-I capital instruments (under Basel III) can potentially be higher and faster than that for Tier-II instruments.
 
Note on Tier-II Instruments (under Basel III)
The distinguishing feature of Tier-II capital instruments under Basel II is the existence of the point of non-viability (PONV) trigger, the occurrence of which may result in loss of principal to the investors and hence, to default on the instrument by the issuer.  According to the Basel III guidelines, the PONV trigger will be determined by the Reserve Bank of India (RBI). CRISIL believes that the PONV trigger is a remote possibility in the Indian context, given the robust regulatory and supervisory framework and the systemic importance of the banking sector. The inherent risk associated with the PONV feature is adequately factored into the rating on the instrument.
 
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size
(Rs.Cr)		 Rating Outstanding
with Outlook
INE238A08443 Bonds (Additional Tier I under BASEL III) 28-Jun-17 8.75 Perpetual 3500 CRISIL AA+/Stable
INE238A08435 Tier II Bonds Issue (Under Basel III) 15-Jun-17 7.66% 15-Jun-27 5000 CRISIL AAA/Stable
INE238A08427 Bonds (Additional Tier I under BASEL III) 14-Dec-16 8.75% Perpetual 3500 CRISIL AA+/Stable
INE238A08369 Tier II Bonds Issue (Under Basel III) 12-Feb-15 8.45% 12-Feb-25 850 CRISIL AAA/Stable
INE238A08377 Tier II Bonds Issue (Under Basel III) 30-Sep-15 8.50% 30-Sep-25 1500 CRISIL AAA/Stable
INE238A08393 Tier II Bonds Issue (Under Basel III) 27-May-16 8.50% 27-May-26 2430 CRISIL AAA/Stable
NA Tier II Bonds/Debenture Issue (Under Basel III))^ NA NA NA 4000 CRISIL AAA/Stable
NA Tier II Bonds Issue (Under Basel III)^ NA NA NA 570 CRISIL AAA/Stable
INE238A08351 Infrastructure Bonds 5-Dec-14 8.85% 5-Dec-24 5705 CRISIL AAA/Stable
INE238A08385 Infrastructure Bonds Issue 30-Oct-15 8.25% 30-Oct-25 3000 CRISIL AAA/Stable
INE238A08401 Infrastructure Bonds Issue 20-Oct-16 7.60% 20-Oct-23 5000 CRISIL AAA/Stable
INE238A08450 Infrastructure Bonds Issue 28-Dec-18 8.60% 28-Dec-28 3000 CRISIL AAA/Stable
NA Infrastructure Bonds issue^ NA NA NA 5500 CRISIL AAA/Stable
NA Certificate of Deposits NA NA NA 60000 CRISIL A1+
^Yet to be issued
 
Annexure - List of entities consolidated
Entity consolidated Extent of consolidation Rationale for consolidation
Axis Capital Limited Full Subsidiary
Axis Private Equity Limited Full Subsidiary
Axis Asset Management Company  Limited Full Subsidiary
Axis Finance Limited Full Subsidiary
Axis Securities Limited Full Subsidiary
Axis Bank UK Limited Full Subsidiary
Freecharge Payment Technologies Private Limited Full Subsidiary
Accelyst Solutions Private Limited Full Subsidiary
Axis Capital USA, LLC. Full Step down Subsidiary
A.TREDS Limited Full Subsidiary
Axis Trustee Services Limited Full Subsidiary
Axis Mutual Fund Trustee Limited Full Subsidiary
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Certificate of Deposits  ST  60000.00  CRISIL A1+      30-12-19  CRISIL A1+  24-12-18  CRISIL A1+  21-06-17  CRISIL A1+  CRISIL A1+ 
                08-10-18  CRISIL A1+  13-06-17  CRISIL A1+   
                03-10-18  CRISIL A1+  08-05-17  CRISIL A1+   
                11-05-18  CRISIL A1+       
                27-02-18  CRISIL A1+       
Infrastructure Bonds  LT  16705.00
17-01-20  		CRISIL AAA/Stable      30-12-19  CRISIL AAA/Stable  24-12-18  CRISIL AAA/Stable  21-06-17  CRISIL AAA/Stable  CRISIL AAA/Stable 
                08-10-18  CRISIL AAA/Stable  13-06-17  CRISIL AAA/Stable   
                03-10-18  CRISIL AAA/Stable  08-05-17  CRISIL AAA/Stable   
                11-05-18  CRISIL AAA/Stable       
                27-02-18  CRISIL AAA/Stable       
Tier I Bonds (Under Basel III)  LT  16780.00
17-01-20  		CRISIL AA+/Stable      30-12-19  CRISIL AA+/Stable  24-12-18  CRISIL AA+/Stable  21-06-17  CRISIL AA+/Stable  CRISIL AA/Stable 
                08-10-18  CRISIL AA+/Stable  13-06-17  CRISIL AA+/Stable   
                03-10-18  CRISIL AA+/Stable  08-05-17  CRISIL AA+/Stable   
                11-05-18  CRISIL AA+/Stable       
                27-02-18  CRISIL AA+/Stable       
Tier II Bonds (Under Basel III)  LT  9780.00
17-01-20  		CRISIL AAA/Stable      30-12-19  CRISIL AAA/Stable  24-12-18  CRISIL AAA/Stable  21-06-17  CRISIL AAA/Stable  CRISIL AAA/Stable 
                08-10-18  CRISIL AAA/Stable  13-06-17  CRISIL AAA/Stable   
                03-10-18  CRISIL AAA/Stable  08-05-17  CRISIL AAA/Stable   
                11-05-18  CRISIL AAA/Stable       
                27-02-18  CRISIL AAA/Stable       
All amounts are in Rs.Cr.
Links to related criteria
Rating Criteria for Banks and Financial Institutions
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt
Rating criteria for Basel III - compliant non-equity capital instruments

For further information contact:
Media Relations
 Analytical Contacts
 Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

 Krishnan Sitaraman
Senior Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 8070
krishnan.sitaraman@crisil.com

Subhasri Narayanan
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3403
subhasri.narayanan@crisil.com

Bhargav Mehta
Rating Analyst - CRISIL Ratings
CRISIL Limited
B:+91 22 3342 3000
Bhargav.Mehta@crisil.com 		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
 
For more information, visit www.crisil.com 

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.

CRISIL PRIVACY
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.

DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL