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RPT-Fitch: Axis stake sale not to erode Indian Govt's bank support
January 23, 2014 / 9:47 AM / 4 years ago

RPT-Fitch: Axis stake sale not to erode Indian Govt's bank support

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Jan 23 (Reuters) - (The following statement was released by the rating agency)

The governmenta€™s plan to sell part of its stake in Axis Bank does not reflect a strategic shift in support for its majority-owned banks, says Fitch Ratings. This is because the initiative reflects a step-up in the efforts to try and meet its disinvestment targets a€“ even as the probability of support for majority-state-owned banks remains anchored by governing acts which cannot be easily changed.

The planned sale, if it materialises, seems intended to contribute to the governmenta€™s near-term fiscal objectives. The current state shareholding in Axis bank is 20.7%, held through the Specified Undertaking of Unit Trust of India (SUUTI). The anticipated sale of around one-half of its stake is expected to generate approximately INR60bn, and help in meeting the central governmenta€™s disinvestment target of INR540bn for the financial year.

However, this event would not weaken our expectation of support for the state-owned banks. This is because the prospect of support and the maintenance of the governmenta€™s majority stake in these banks is by virtue of the respective acts which govern these banks. Any plan to reduce ownership below 51% for nationalised banks, and 55% for State Bank of India, would require amendment of these acts by parliament a€“ which is unlikely any time soon, given the political considerations of such an action. Moreover, the government has shown its continued willingness to extend support via regular capital injections.

The Issuer Default Rating (IDR) of Axis does not benefit from government support to start with; and the a€œviability ratinga€� of a€˜bbb-a€™ (which is also the IDR), and the Support Rating Floor of BB+, would both remain unaffected by the success of the sale. A reduction in state ownership, exercised through SUUTI a€“ an investment arm of government, set up to rescue UTI in 2003 a€“ could change the board composition of Axis Bank but not its day-to-day operations. This is because any reduction in the three (out of the 14) board seats held by government is unlikely to alter the way the bank is managed.

The recent relaxation of the foreign investment limit in Axis Bank to 62% (up from 49%) in December 2013 should also raise foreign interest in the planned share sale of Axis, which has performed above the average for Indian private-sector banks.

For more details on Axis Bank’s ratings and credit profile, see “Fitch Takes Rating Action on Indian Banks”, dated 23 September 2013, available at www.fitchratings.com.

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