Moody's upgrades IDBI Bank rating on improved solvency

Moody's Investors Service Wednesday upgraded IDBI Bank's rating by two notches to 'Ba2' citing improved solvency of the bank following significant capital infusion.

Moody's also revised outlook on the bank to positive, saying given the high amount of non-performing loan (NPL) recognition already done, we expect the NPL formation rate to significantly decline.

On January 21, IDBI received Rs 5,030 crore from the allotment of new shares to the Life Insurance Corporation of India. This follows the receipt of Rs 14,500 crore in capital from the previous tranche on December 28, 2018.

Moody's Investors Service upgrades the long-term foreign currency senior unsecured rating of IDBI Bank to Ba2 from B1. The long-term local and foreign currency bank deposit ratings of IDBI was also upgraded to Ba2 from B1, the agency said in a statement.

Ba2 rating implies non-investment grade speculative, while B1 implies highly speculative grade.

"The capital infusion will enable the bank to increase provisions for bad loans, which, when combined with stabilising asset quality, will result in lower credit costs and improve profitability in 2020," Moody's said.

It said if some of the capital received is used to increase provision coverage, profitability can improve significantly as a result of lower future credit costs. "The positive outlook factors in this scenario," Moody's said.