"HDFC's ratings reflect its demonstrated ability to contain interest rate risk to an extent by re-pricing existing loans, despite the sizeable maturity mismatches between its assets and liabilities," the rating agency said.
The ratings also factor in the government of Sri Lanka's (GOSL) 51 percent ownership of the bank.
It also considered the bank's perceived importance to low- and middle-income housing, sizeable funds derived from the state and related entities, low ultimate credit risk of its housing loans, and inherent limitations in its current business model.
"The ratings could be upgraded if there is a sustained improvement in HDFC's maturity mismatches and sustained higher equity funding, as well as if it continues to re-price existing loans in a rising interest rate environment in a timely manner while maintaining healthy asset quality