Rating agency Standard and Poor’s has downgraded the issuer rating of from “BBB-” to “BB+”, expecting that the heightened economic risks facing India’s banking system will affect the lender’s asset quality and financial performance.

At the same time, it placed ratings of public sector lender Indian Bank (BBB-) on credit watch with negative implications.

The public sector bank’s credit profile could weaken over the coming quarters due to Covid-19 as well as merger with the weaker Allahabad Bank, S&P said in a statement.

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It affirmed ratings on seven other Indian While Axis’ asset quality is superior to the Indian average, its level of non-performing assets (NPAs) will likely remain high compared to international peers. “Nevertheless, we expect the bank to maintain its strong market position and adequate capitalisation,” said the rating agency.

The stable outlook reflects a view that ratings on Axis already factor in some deterioration in the bank’s asset quality and performance over the next 12 months, it said.

The risks stemming from challenging operating conditions following Covid-19 have increased for Indian “We now expect the Indian economy to fall into recession in the current fiscal year,” said S&P.

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