S&P downgrades IDBI Bank to 'BB' on very weak asset quality

Global ratings agency Standard & Poor’s (S&P) has lowered the long-term foreign currency issuer credit rating of IDBI Bank to 'BB' from 'BB+'. The asset quality of the public sector lender is expected to remain very weak over the next 12 month, S&P said.

"Our view is based on the bank's customer concentration and a sizable exposure to the highly vulnerable corporate and infrastructure segments," said S&P Global Ratings credit analyst Nikita Anand.

Therefore, S&P has reassessed the bank's risk position score to 'very weak' from 'weak'. Accordingly, it has lowered IDBI's stand-alone credit profile to 'B-' from 'BB-'.

The outlook is stable. S&P also lowered issue ratings on senior unsecured notes to 'BB' from 'BB+'. Further, it affirmed the 'B' short-term rating on IDBI.

IDBI has high single-name concentration, with the exposure to the top 20 customers standing at about 222 per cent of the bank's equity as of March 31, 2016. This figure was higher than the peer average at 168 per cent for the top five Indian public sector banks. Moreover, IDBI has a high exposure to the troubled infrastructure segment — 25.7 per cent as of December 31, 2016. This makes the bank more vulnerable than peers. The current down cycle in India has been protracted and we expect only a gradual improvement in the corporate sector, said S&P.

S&P said it expected IDBI's reported stressed assets to continue to increase as the recognition norms in India improve. The bank's nonperforming loan ratio rose sharply to 15.2 per cent as of December 31, 2016, from 10.9 per cent as of March 31, 2016. The deterioration was greater than expected.
 

 IDBI's standard restructured loans, at 7.2 per cent of total loans, also remain higher than its peers. All these factors reflect a significant weakness in the bank's asset quality.

Stressed asset quality and resultant high credit costs have strained IDBI's earnings. The bank reported a loss of Rs 3,660 crore in financial year 2016 (year ended March 31, 2016) and Rs 1,906 crore in the first nine months of financial year 2017.