In a rating watch statement, ICRA said that it has re-affirmed the LAAA rating with a stable outlook on ICICI Bank's subordinated debt programme and long-term bonds programme, which indicate highest credit quality and lowest credit risk for the two instruments.
Besides, the agency has also re-affirmed its highest credit quality rating, MAAA, for the bank's term deposit programme and the A1+ rating, indicating highest safety in the short term, for the Rs 50,000 crore certificates of deposit programme of the bank.
Besides, the ratings for the debts taken over by ICICI Bank from the erstwhile ICICI Limited have also been retained at LAAA with stable outlook and MAAA, respectively.
"The highest credit quality ratings are supported by ICICI Banks' position in the Indian financial system as the second largest commercial bank, its sound capitalisation levels, its extensive corporate relationships and the bank's retail franchise," ICRA said.
ICRA has taken note of the pressure on the profitability of the bank as a result of deterioration in retail asset quality, increase in cost of funds and rise in provisions on its investment book.
ICICI bank has taken several steps, like shifting from higher loss retail space, reducing the pace of fresh asset creation and tightening credit norms, to improve its asset quality, ICRA said and added that these steps are likely to help in improving the asset quality over long term however their efficacy would be linked to the operating environment.
ICRA further said ICICI Bank's large networth would give protection to debt holders, besides, the bank's efforts to increase the retail deposits and CASA (current and saving accounts) deposits could help it arrest the increase in cost of funds.
ICRA has also taken note of the increase in the asset liability mismatch as on September 30, 2008 against March this year. Steps taken by RBI to address the liquidity at systemic level and ICICI Bank's own efforts would be important to improve its liquidity profile.
ICRA would continue to monitor the liquidity of the bank closely and expects it to reduce the dependence on bulk deposits and borrowings to improve its ALM profile over the medium term.
Overall, it would be critical for the bank to maintain capitalisation levels and net NPAs as percentage of net worth at an acceptable level and improve its liquidity profile, ICRA added.
