Confirming ICICI Bank’s ratings, global ratings agency Standard and Poor’s said on Monday that India’s private sector lender is likely to maintain improving asset quality, buoyed by the country’s economic recovery and better risk management.

It also maintained a “stable” outlook on the rating, reflecting the view that ICICI Bank will maintain its strong market position and good capitalization over the next 12-18 months. It has a “BBB-” long-term rating on the Indian lender.

However, an upgrade of ICICI is unlikely in the next two years as it would require an upgrade in the bank’s financial profile as well as India’s credit rating.

The rating agency, in a statement, said ICICI Bank’s asset quality is likely to continue to improve. This is despite an uneven economic recovery in India and macroeconomic challenges.

In the base case, its weak loans – non-performing loans (NPLs) plus restructured loans – will decline to 3.0-3.5% of total loans over the next 12 months, from around 4.6% as of March 31. 2022. stable credit conditions will support this. Credit costs are expected to remain around 1% for the next 12-18 months.

ICICI’s asset quality is expected to remain better than the Indian sector average and in line with its international peers over the next two years. The quality of the bank’s assets is comparable to that of its international counterparts with a similar rating. This follows incremental improvements over the past few years.

ICICI largely funded former weak loans, while pandemic-related weak loans were also manageable. Tighter risk management, along with improving operating conditions in India, should help it sustain its lower credit costs and weak lending, he added.

Referring to the scenario for inflation and interest rates, S&P said the impact of higher inflation and higher interest rates should be manageable.

ICICI’s better customer profile and underwriting compared to the Indian banking sector will likely limit losses from the impact of geopolitical tensions. Retail loans represent approximately 53% of the bank’s loan portfolio. These are well diversified between home loans, car loans and unsecured loans, including personal loans and credit cards.

A significant portion of ICICI Bank’s retail lending is for relatively low-risk home loans, and among home loans, a significant portion is for salaried professionals who have a low loan-to-value ratio. This provides a cushion against higher interest rates and lower disposable income due to inflation.