Icra Scales Down Long-Term Rating On Idbi To Laa+

Icra today downgraded the long-term and medium-term ratings of Industrial Development Bank of India by one notch from 'LAAA' and 'MAAA' to 'LAA+' and 'MAA+, respectively. The new rating continues to indicate high safety of investment.

This is the first time that Icra has downgraded the ratings of the IDBI. The agency said the revision in rating is due to concerns of the financial institution's asset quality and pressures on its profitability.

"The downgrading is not necessary. We have spoken to the rating agency and impressed upon it the fact that the current state of economy and some of the sectors has its impact on the financial institution but a slew of steps have been taken to take care of the problems. We were hoping that the agency would see the reason," IDBI chairman P P Vora told Business Standard.

 

The rating agency has, however, retained the short-term rating of 'A1+', which indicates highest safety of investment in the financial instruments issued by the financial institution.

Earlier, on July 17, rating agency Crisil had downgraded the 'AAA' rating assigned to the outstanding bond issues and the certificate of deposit programme of IDBI to 'AA+'. It attributed the revision to deterioration in the financial institution's asset quality and the non-fructification of the earlier indicated recapitalisation plan.

Crisil, however, has retained IDBI's fixed deposit (FD) rating at 'FAAA' and the term money bonds rating at 'P1+'.

The third credit rating company Care -- a subsidiary of IDBI -- is reviewing its parent's rating based on its 2000-01 financial results.

Icra pointed out that IDBI's asset quality was a cause for concern mainly due to significant exposures in various commodity sectors like steel, textile and chemicals. It cautioned that delayed economic recovery and sustained pressure on commodity prices could impair the financial institution's asset quality further.

"While the IDBI's management is focused on improving the situation and arresting further slippages in the assets through emphasis on restructuring and resolving problem loans, achieving success will be challenging given the difficult external environment," the agency said.

It added that the ratings continue to factor IDBI's eminent position in the Indian financial system and the sovereign support that it enjoys. The steps taken by the management to improve its funding cost and focus on non-performing asset (NPA) management as also comfortable liquidity position -provide comfort. IDBI has been able to prepay significant portion of its high cost debt in 2000-01 and this is expected to lead to reduction in interest cost, the Icra release said.

IDBI's net non-performing assets have increased to Rs 8,371 crore (14.82 per cent) as on March 31, 2001 as compared to Rs 7,675 crore (13.40 per cent of net loans) in the previous year.