Crisil Scales Down Sidbi Bond Issue
Credit rating agency Crisil has downgraded the bond issue of Small Industries Development Bank of India (Sidbi). However, the fixed deposits of the institution has been removed from the rating watch.
The bond issue of Sidbi has been downgraded to "AA+" from a AAA rating watch with negative implications, pending further clarity on the change in the shareholding pattern of Sidbi from its erstwhile 100 per cent ownership by IDBI.
Crisil said the revision reflects the reduced quality of government ownership in Sidbi as well as increasing concerns regarding the likely impact on the institution of the deteriorating performance of state financial corporations (SFCs) and state industrial development corporations (SIDCs). However, Crisil said that mitigating these concerns are Sidbi's very strong capital adequacy position and healthy profitability.
Sidbi is now the nodal agency for SFCs and in line with this it has been decided to transfer IDBI's equity stake in SFCs to Sidbi. The financial condition of SFCs, to which Sidbi has a significant exposure, has been steadily deteriorating. Crisil adds that the problems confronting SFCs have thus far merited only limited attention and action from the Centre. Sidbi's asset quality and performance is likely to be adversely impacted in the event of precipitation of these problems and will be a key rating sensitivity, going forward.
With the amendment to the Sidbi Act, 51 per cent of its equity is spread over among 26 public banks and five financial institutions and the balance is being held by IDBI. According to Crisil the continued shareholding by government controlled entities will maintain the public sector nature of the organisation. However, with the majority stake being held by a dispersed set of shareholders, having only limited strategic interest in Sidbi, reflects, according to Crisil, a reduced economic incentive and moral obligation on the part of these shareholders to provide support to Sidbi, if required.
Sidbi's credit ratings derived support not only from its stand alone business and financial risk profile but also from its total ownership by a single, strategic government entity (IDBI). The rating agency also said that beyond the initial capitalisation, the small industries financial body has thus far not required any additional capital infusion. However, in the event of any future capitalisation requirement, the indirect government ownership through multiple agencies could render issues of recapitalisation of the institution more complex as compared to a single owner situation. Sidbi continues to enjoy indirect government support by way of permission to raise priority sector bonds and to accept deposits from foreign banks in lieu of their shortfall in priority sector lending, according to Crisil.