Amid improvement in its funding and capital, Moody's, an international rating agency, has affirmed long-term local and foreign currency deposit ratings of IndusInd Bank at Ba1. The pioneer agency has also affirmed its baseline credit assessment (BCA) and adjusted BCA at ba2. Meanwhile, it has revised the outlook to stable from negative.

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The affirmation of BCA and deposit ratings takes into consideration the bank's strong capital and core profitability as well as relatively modest funding.

The change in outlook to stable from negative is driven by improvement in its funding and capital, and marginal asset quality deterioration because of the economic disruptions from the pandemic, said Moody's.

Despite the economic disruption asset quality deterioration was moderate, with gross and net non-performing loan (NPL) ratios being at 2.93 per cent and 0.22 per cent respectively as of the end of December 2020 compared with 2.18 per cent and 1.05 per cent a year earlier.

The bank raised capital, resulting in a significant increase in the core equity tier one ratio to around 15 per cent from 12.1 per cent at the end of 2019.

Profitability deteriorated because of increase in credit costs but pre-provision remains one of the highest within rated Indian banks. Moody's said profitability will gradually improve as credit costs normalise in 2021.

Funding quality has been improving over the past 12 months with the share of retail deposits in total funding increasing to 27 per cent at the end December 2020 from 24 per cent at the end-March 2020.

With management prioritising improving funding mix over loan growth, Moody's expects further improvement over the next 12 to 18 months.