Despite expecting challenges to the Indian banking system because of the COVID-19 pandemic, global ratings agency Standard and Poor's feels HDFC Bank will be resilient and said that the country's sovereign rating restricts it from upgrading the country's largest private sector lender.
It appreciated HDFC Bank's comfortable capitalisation, strong earnings, regular capital raising to fund above-average growth and the "best" asset quality in the system.
The bank reported an 18 per cent increase in the March quarter to Rs 6,928 crore after provisioning Rs 1,550 crore for the impact of COVID-19 and losing Rs 450 crore in income due to the lockdown. Its asset quality also improved over the previous quarter with the gross non-performing asset (GNPA) ratio at 1.26 per cent.
"The rating on HDFC Bank is capped by our sovereign credit rating on India (BBB-/Stable/A-3). The rating on the bank will therefore move in tandem with that on the sovereign," the rating agency said in a note.
"We would raise our rating on HDFC Bank if we upgrade the sovereign," it added.
They added that the agency does not rate Indian banks above the sovereign because of the direct and indirect influence that a sovereign has on banks operating in the country.
S&P feels Kotak Mahindra Bank will be the other lender that will be able to withstand difficulties on the asset quality during the challenging period.
It expects the government to step in with support to the state-run lenders in case they experience any difficulties.
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