Moody's Investors Service has affirmed Export-Import Bank of India's (EXIM India, Baa3 stable) Baa3 issuer ratings, deposit ratings, and senior unsecured debt and program ratings.
The baseline credit assessment (BCA) is maintained at ba2. The outlook remains stable.
The Baa3 foreign-currency deposit, issuer and senior unsecured debt and program ratings of Export-Import Bank of India reflect; its standalone credit profile of ba2; and our assessment of a very high dependence on, and the high probability of support from, the Government of India (Baa3 stable).
The bank's BCA of ba2 takes into account (1) its strong capital buffers to absorb asset quality losses, with a Tier 1 ratio of 13.7% and a loan loss reserve coverage of around 80% at end-March 2013; and (2) the bank's high profitability, with pre-provision income as a % of average risk weighted assets at 3.8% for the financial year ended March 2013; and (3) its good liquidity management.
On the other hand, the ba2 BCA also captures the recent asset quality stress arising from the overall economic downturn in India. Its non-performing loan and standard restructured loan ratios increased to 2.3% and 4.1%, respectively, at end-March 2013, from 1.5% and 1.5% at end-March 2012.
Around 55% of the bank's loan book consists of loans to Indian corporates spread across various sectors. It is this part of the loan book that has seen a deterioration in asset quality, driven by a slowdown in the Indian economy and a weakening of corporate balance sheets. Moody's expects asset quality in this portion of the loan book to remain under pressure due to the challenging economic environment in India.
The remaining 45% of the loans, which has not suffered any impairment, primarily consists of loans extended under bilateral government-to-government programs and loans to banks in India for the purpose of refinancing their loans to exporters. Loans under bilateral government-to-government programs enjoy an explicit credit guarantee from the government. With respect to the loans to banks in India, Exim assumes the credit risk associated with the bank and not that of the underlying exporter.
The bank's final Baa3 rating incorporates a two-notch uplift due to Moody's assumption of the bank's very high dependence on, and the high probability of support from, the government.
The assumption is based on EXIM India's strong relationship with the government, including its establishment under a law that designates its quasi-sovereign status, the government's full ownership of the bank, and the bank's clear policy role as an export credit agency.
The government has been infusing capital into the bank every year for the past nine years, up to a total of Rs 24.1 billion. Furthermore, the government uses the bank as a vehicle to extend bilateral loans in pursuance of its foreign policy goals, and for which it provides financial compensation for any subsidy in pricing that might be assumed by the bank in conducting such mandate. Moody's does not expect such government support to change.
