Moody's affirms ratings for IDBI Bank's long-term deposits at "Ba2"

Flags increased uncertainty over level of govt support despite improvement in asset quality, capital and funding

Rating agency Moody's today affirmed IDBI Bank's long-term deposits at “Ba2” due to an increase in uncertainty in the level of support from the government, despite significant improvement in asset quality, capital and funding.

At the same time, Moody's has upgraded private sector lender's baseline credit assessment (BCA) and adjusted BCA from “b2” to “b1”. The upward revision in BCA is driven by improvement in financial profile.

The outlook on the ratings remains stable as IDBI's improving solvency metrics is offset by risks of lower government of India's support.

Moody's in a statement said uncertainty around the level of extraordinary support has increased following the announcement by the authorities of a planned divestment of IDBI.

The government has announced a plan to divest a majority stake in the bank along with management control to strategic investors. State owned life Insurer Life Insurance Corporation of India owns 49.24 per cent stake while the government held 45.48 per cent stake at the end of Quarter ending March 2021.

Rating agency said IDBI Bank's asset quality will remain robust and better than peers in India in the next 12 to 18 months. The provision coverage ratio (PCR) increased to 97 per cent as of the end of March 2021, from 91 per cent at the end March 2019.

Its net NPL ratio declined to two per cent as of end of March 2021, from 10.1 per cent at end March 2019, after the bank fully recognised and provided for its legacy problem loans in the corporate segment.

Both its provision coverage ratio and net NPL ratio compare well with the other rated Indian banks' average of 78.4 percent and 2.8 per cent respectively, it added.

The capital has strengthened with the core equity tier 1 ratio increasing to 13.1 per cent at end March 2021 compared to 10.6 per cent a year earlier.

The profitability has improved with the bank returning to profit after five years of losses with an ROA of 0.4 per cent in the year ending March 2021.