IDBI Bank tanks after credit rating downgrade

IDBI Bank slumped 8.83% to Rs 26.85 after S&P Global Ratings downgraded its ratings on the bank after capital breach.

On 27 August 2019, S&P Global Ratings placed its 'BB' long-term and 'B' short-term foreign currency issuer credit ratings on IDBI Bank on CreditWatch with negative implications. It also placed its issue ratings on the bank's senior unsecured debt on CreditWatch with negative implications. The ratings reflect the uncertainty regarding IDBI's ability to meet its regulatory capital requirement over the next few months.

IDBI Bank expects to raise capital from its majority shareholders--Life insurance Corporation of India (LIC holding 51% stake) and the government of India (holding 46% stake)--before 30 September 2019, to meet the shortfall, but the quantum and timing of the capital infusion is uncertain, S&P Global said.

The ratings agency said it could lower its ratings further on IDBI if the capital infusion by shareholders is delayed beyond a month or it is insufficient to ensure that the bank meets its regulatory minimum requirements with a sufficient buffer over the next few quarters. A downgrade could also happen if IDBI is likely to incur more losses, especially due to provisioning costs for its legacy NPLs or challenging operating conditions, which would erode its capital position or lead to another capital breach, in the absence of any capital infusion. In such a scenario, the rating will go down by at least two notches, the agancy said.

However, the ratings could affirm if the capital infusion is sufficient to meet the regulatory capital requirements and if S&P Global Ratings' expected risk-adjusted capital ratio is likely to sustain above 5% over the next 12-18 months. This has to be accompanied by improvements in operating performance of the bank and addressing of legacy asset quality issues. The announcement was made after trading hours yesterday, 27 August 2019.

Shares of IDBI Bank surged 20.44% in the past three trading sessions to settle at Rs 29.45 yesterday, 27 August 2019, from its close of Rs 24.45 on 22 August 2019.

On BSE, 5.74 lakh shares were traded in IDBI Bank counter, compared to a 2-week average of 14.07 lakh shares. The stock hit an intraday high of Rs 28.75 and an intraday low of Rs 26.55.

It hit a 52-week high of Rs 65.80 on 9 January 2019 and a 52-week low of Rs 23.55 on 23 August 2019.

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