)
Rating agency Standard & Poor’s (S&P) has cut IDBI Bank’s foreign currency issuer credit rating from BBB- to BB+, as the public sector lender’s asset quality is expected to remain weak through the next 12-18 months.
Meanwhile, the agency affirmed Chennai-based public sector lender Indian Bank’s BBB- long-term and A-3 short-term issuer credit ratings. The outlook on the long-term rating is negative.
On IDBI Bank, S&P said the outlook on the bank’s long-term rating was negative. The issue ratings on IDBI Bank’s senior debt has been downgraded to BB+ from BBB-, subordinated debt to BB- from BB+, and junior subordinated debt to B from B+.
On Monday, the IDBI Bank stock closed at Rs 64.80, 2.29 per cent up on the BSE.
“We expect IDBI Bank’s credit costs to remain high because of the bank’s weak asset quality,” said S&P credit analyst Amit Pandey. S&P also revised its assessment of the bank’s risk position from “adequate” to “moderate”.
“We still see a very high likelihood that the government of India will provide timely and sufficient extraordinary support if the bank comes under financial distress,” S&P said.
It added non-performing loans in the bank’s infrastructure loan book could rise, given the tough economic conditions in India. This could lead to higher average credit costs. The bank’s loan book is fairly concentrated, in terms of single-name exposure. Until recently, IDBI was able to limit the rise in its non-performing loans better than other large public sector banks. However, the bank hasn’t fare well on this front in the first half of 2013-14.
Under S&P’s framework, the bank’s risk-adjusted capital ratio (pre-diversification) was 6.3 per cent as of March 31, 2013. The ratio is likely to remain at similar levels for the next two years, given expectations of slower growth for the bank, the agency said.
S&P also factored in the government’s recent decision to infuse Rs 1,800 crore into the bank. IDBI Bank’s earnings profile will remain weaker than those its peers because of low margins and higher credit costs. Earnings and the capital infusion by the government were likely to be sufficient to support moderate growth, leading to stable capital levels, S&P said.
