IDBI Bank slips 10% after S&P places ratings on CreditWatch negative

The rating agency said it placed the ratings on CreditWatch to reflect the uncertainty regarding IDBI's ability to meet its regulatory capital requirement over the next few months.

IDBI Bank slipped 10 per cent to Rs 26.55 on the BSE in Wednesday's early morning trade after S&P Global Ratings placed the bank’s 'BB/B' ratings on credit watch negative after capital breach. The stock was trading close to its 52-week low level of Rs 23.55, touched on August 23 in intra-day deal.

“The bank is in breach of its regulatory capital requirements after a substantial loss in first quarter of fiscal 2020 (Q1FY20). We placed the ratings on CreditWatch to reflect the uncertainty regarding IDBI's ability to meet its regulatory capital requirement over the next few months”, the global rating agency said in a statement.

IDBI Bank’s Q1FY20 net loss widened to Rs 3,801 crore on the back of higher provisioning and lowers net interest income. It had posted a loss of Rs 2,410 crore in the same quarter last fiscal. Due to a string of losses brought about by substantial problem loans and associated high provisioning costs, the bank's financial performance has weakened in the past few years.

The bank expects to raise capital from its majority shareholders--Life insurance Corporation of India (LIC; 51 per cent) and the government of India (46 per cent)--before September 30, 2019, to meet the shortfall, but the quantum and timing of the capital infusion is uncertain, S&P Global Ratings said.

“We believe the breach is temporary and a capital infusion by LIC and the Indian government could help IDBI to replenish capital. The raising capital from the market will be particularly challenging, given IDBI's weak valuations. The bank is dependent on the Indian government and LIC for such capital to correct the breach,” it said.

At 10:20 am, IDBI Bank was trading 9 per cent lower at Rs 26.80, as compared to 0.35 per cent decline in the S&P BSE Sensex. A combined 10.4 million shares have changed hands on the counter on the NSE and BSE so far.