Saturday, 12 August 2017 08:14

HDFC Bank’s intrinsic strength becomes weaker

State owned HDFC Bank’s intrinsic strength will  be weakened if the government is failed to raise the bank's  capital  to  meet  the  minimum Rs.5  billion  capital  requirement  by  1  January  2018, Fitch Ratings agency said.

         State owned HDFC Bank’s intrinsic strength will  be weakened if the government is failed to raise the bank's  capital  to  meet  the  minimum Rs.5  billion  capital  requirement  by  1  January  2018, Fitch Ratings agency said.          The requirement has been in force since 2016 and Fitch would see a further delay as an indication that  creditors  may  no  longer  be  able  to  rely  on  sovereign  support  in  a  timely  manner, notwithstanding HDFC Bank's unchanged linkages with the state.  HDFC's  rating of 'BBB(lka)'on  Rating Watch Negative (RWN) reflects  Fitch's  expectation  that  the  bank  would  receive  extraordinary  support from the sovereign, if required.Fitch Ratings agency assessment captures  the  state's 51% effective holding, of which  the  National  Housing  Development  Authority  directly  owns  49%;  the  bank's  quasi-policy role  in  supporting  housing-development  initiatives;  as  well  as  HDFC  Bank's  low  systemic importance.  Fitch  estimates  that it  would  take  HDFC  Bank  more than  four  years  to  generate  the required capital from retained earnings.Its profitability, in terms of return on assets, has been declining because net-interest margins have been contracting due to higher funding costs stemming from the bank's short-tenor deposit base, which reprices regularly, and its high-cost business model.   The  bank's  profitability,  funding  and  liquidity  could  also  be  affected  by  business  restrictions imposed by the Central Bank of Sri Lanka (CBSL). (LI NEWS)

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