S & P Frowns At Idbi, Icici Assets

International rating agency Standard & Poor's today reaffirmed its negative outlook for ICICI and Industrial Development Bank of India (IDBI).

It also said IDBI's standalone credit profile is weaker than what its rating implies.

"The government needs to play an active role in ensuring that IDBI is sufficiently capitalised to meet provisioning and capital standards on an ongoing basis," S&P said in a statement today.

Last month, as part of a revival strategy presented to finance ministry, IDBI had sought extension of tenure of Rs 1,400 crore RBI debt to 50 years and subscription of long-term preference capital by the government.

The rating agency also affirmed its BB long term and B short term counterparty credit rating for financial institutions ICICI and IDBI.

S&P also said that despite efforts by IDBI to re-evaluate its business strategy and repositioning itself as a universal bank, it faces stiff challenge to compete effectively with competitors that are better placed to respond to changing market conditions, particularly at a time when it is addressing asset-quality problems and the structure and cost of funding.

It added that IDBI's profits remains moderate and highlights margin pressure and growing loan loss provisioning charges. Also, after-tax profits in the past two years have been significantly supported by gains from sale of securities.

On ICICI, S&P has said that the institution's credit profile continues to be moderated by its asset quality, which is regarded as weak by international standards.

"Although, the company is diversifying its business profile, many of its core wholesale market activities are of a higher risk than traditional short-term bank financing, and most non-traditional lines of business remain small in the context of company's total operations," the rating agency said.

"Management and profitability pressures, as well as asset quality remain key challenges for both ICICI and IDBI in the current operating environment," it added.