Analysts See More Bank Downgrades

After non-banking finance companies, it's the turn of banks and financial institutions to face downgrading of ratings.

The Industrial Development Bank of India (IDBI) was downgraded yesterday, while Dena Bank was placed under rating watch with negative implications.

The list of banks and financial institutions which have faced either downgrading or rating watch over the last few months includes Global Trust Bank, Nedungadi Bank Ltd (NBL), Industrial Finance Corporation of India (IFCI) and Small Industries Development Bank of India (Sidbi).

"There is a possibility that more banks will be downgraded. After the Unit Trust of India (UTI) fiasco, the faith in government ownership has gone down... All government-owned banks and institutions face a possible review for rating change," said an analyst.

On Tuesday the IDBI was downgraded by the Credit Rating Information Services Ltd (Crisil) from triple-A (AAA) to double-A-plus (AA+).

The one-notch downgrade was triggered by deterioration in asset quality and delay in implementation of the capital restructuring plans of the institution.

On the same day, Icra placed the LAA rating assigned to the Rs 300 crore bond programme and the A1+ rating to the Rs 500 crore certificate of deposit (CD) programme of Dena Bank under rating watch with negative implications due to deterioration in asset quality.

In May, the Global Trust Bank's (GTB) CD programme was downgraded from P1 to P3, and removed from rating watch.

The potential liquidity pressures on the bank had increased as a result of deterioration in asset quality, asset liability profile with liabilities skewed towards the shorter end of the maturity spectrum along with reduction in deposits.

Icra also downgraded the subordinated debt programme of NBL to LBBB from LA- and placed it under rating watch.

The revised rating indicates moderate safety with considerable variability in risk factors factoring in non-compliance in prudential norms laid down by the Reserve Bank of India (RBI). There was also lack of clarity on the share holding pattern of NBL.

Last year, Icra had downgraded IFCI from MAA-plus to MAA-minus due to high non-performing assets, which, according to analysts, is a common sight in all public sector bank balance sheets.

Dena Bank's downgrade was due to low profitability. The bank had posted a loss of Rs 266.13 crore for 2000-01 against a profit of Rs 62.88 crore in 1999-00.

The losses were mainly due to increased operating expenses and higher provisioning requirements for NPAs.

In December 2000, Crisil also placed the bond issues and the fixed deposit programme of Sidbi under a rating watch with negative implications.