Standard & Poor’s (S&P) has revised the outlook on Axis Bank from stable to positive citing improved asset quality. The rating agency also affirmed the BB+ long-term rating, B short-term issuer credit ratings on the lender and BB+ long-term issue rating on Axis Bank’s outstanding debt.

S&P said that the affirmation of its ratings on Axis Bank follows a revision to its criteria for rating lenders and non-bank financial institutions.

S&P added that the outlook revision reflects its view of a one-in-three chance that Axis Bank’s asset quality could continue to improve such that the lender’s credit costs and level of weak loans are commensurate with those of higher-rated Indian and international peers.

The development comes after Axis Bank reported strong numbers for the third quarter ended December 31, 2021. While its net profit shot up by 224 per cent to Rs 3,614 crore against Rs 1,117 crore in the year-ago period, the gross non-performing assets (NPA) ratio improved to 3.17 per cent from 3.53 per cent on a sequential basis.

Gross slippages were also lower at Rs 4,147 crore compared with Rs 5,464 crore in the July-September period. According to S&P, Axis Bank’s loan growth, asset quality, and profitability should improve as economic activity gains pace in India over the next two years.

It forecast that the bank’s weak loans, defined as non-performing loans (NPLs) and restructured loans, will decline to 3.3-3.5 per cent over the next 12 months from about 3.8 per cent of total loans as of December 31, 2021, supported by stabilising credit conditions.

It disclosed that as of December 31, 2021, Axis Bank had restructured a small 0.6 per cent of its total loans, mainly from retail and corporate segments. Additionally, the bank has identified at-risk exposures (rated “BB” and below plus restructured loans) of about 0.9 per cent of loans.