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Moody's Investors Service, the credit rating division of Moody's Corp. (MCO - Analyst Report), has reiterated certain ratings on three Indian banks, namely Axis Bank Limited, HDFC Bank Ltd. (HDB - Analyst Report) and ICICI Bank Ltd. (IBN - Analyst Report). Additionally, the rating agency has maintained its outlook these banks at ‘Stable.’

Moody’s reaffirmed the senior unsecured debt and local currency deposit ratings of Axis Bank, HDFC Bank and ICICI Bank at ‘Baa2.’ Further, the rating agency reiterated each bank's financial strength rating at ‘D+,’ which is similar to a baseline credit assessment (BCA) of baa3.

Moody’s ratings affirmations for Axis Bank, HDFC Bank and ICICI Bank stem from these banks’ relatively strong credit quality. The aforementioned banks benefit from their significant presence in the retail market, though exposure to the corporate sector marginally offsets this.

Moreover, Moody’s expects the sturdy profitability and balance sheet position of HDFC Bank, Axis Bank and ICICI Bank to provide additional support to asset quality metrics in the near term.

Further, due to compliance with stringent underwriting standards by these banks, the credit quality in the retail segment did not deteriorate even amid the slowdown in the Indian economy. Notably, these banks had tightened their underwriting standards after suffering losses during 2008–2010.

Moody’s believes that growth in HDFC Bank, Axis Bank and ICICI Bank are driven by mortgages and auto loans as well. Moreover, though the economic growth weakened in India, demand for loans has remained stable.

Given the diversity in operations, HDFC Bank, Axis Bank and ICICI Bank are benefiting from lower non-performing loans (NPL) and restructured loans as compared to public sector banks. Furthermore, the banks have a strong capital position and adequate internal capital levels to sustain additional capital requirements.

Moody’s believes that the chance of ratings upgrade is minimal until there is a revision to India’s sovereign rating. Nevertheless, a downward revision in ratings is possible if there is a decline in earnings as well as internal capital generating capability.

The affirmation of ratings by Moody’s will enhance investors’ confidence in these banks. Further, chances of a rise in the banks’ funding cost are low going forward.

Currently, HDFC Bank and ICIC Bank carry a Zacks Rank #3 (Hold). A better-performing foreign bank worth considering is Deutsche Bank AG (DB - Analyst Report), which has a Zacks Rank #1 (Strong Buy).

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