S&P downgrades IDBI Bank ratings to ‘very weak’
Mumbai: IDBI Bank has joined Indian Overseas Bank to become the only two banks to be classified as “very weak” after a ratings downgrade by Standard & Poor’s (S&P) Global Ratings on Tuesday.
The classification refers to S&P’s assessment of IDBI Bank’s risk position score, which was “weak” before this, according to a statement by the rating agency.
The state owned lender’s long-term foreign currency issuer credit rating was downgraded to BB from BB+. The agency also lowered its issue ratings on the bank’s senior unsecured notes to BB from Bb+. The outlook, S&P confirmed, is still stable for IDBI Bank.
“We downgraded IDBI because we expect the bank’s asset quality to remain very weak over the next 12 months,” said S&P Global Ratings credit analyst Nikita Anand. “Our view is based on the bank’s customer concentration and a sizable exposure to the highly vulnerable corporate and infrastructure segments,” Anand added.
Over a webinar on Tuesday, Anand confirmed that IDBI Bank was only the second bank, after Indian Overseas Bank, in the Asia-Pacific region to have a risk position score of “very weak”.
IDBI Bank’s exposure to the top 20 customers was about 222% of the bank’s equity as of 31 March, 2016, higher than 168% for the top five Indian public sector banks, S&P noted. Moreover, IDBI has high exposure to the troubled infrastructure segment, at about 25.7% as on 31 December, 2016, making the bank more vulnerable than peers.
“The current downcycle in India has been protracted and we expect only a gradual improvement in the corporate sector,” S&P said.
According to Anand, the rating agency expected the asset quality situation at IDBI Bank to worsen over the next 12-18 months and the rating downgrade would hold for at least that period of time.
The stable outlook on IDBI Bank took into account the government’s commitment to support the lender through any capital concerns, the agency said.
“We believe that the bank may receive capital from the government or public sector entities to meet the minimum regulatory capital requirement. The bank may also tap the market to raise additional Tier 1 capital or sell down loans,” S&P said in its statement.
IDBI Bank reported a loss of Rs2,254.96 crore in the December quarter against Rs2,183.68 crore a year ago. Gross non-performing assets (NPAs) rose 17% to Rs35,245.33 crore at the end of the December quarter from Rs30,133.96 crore in the September quarter. On year-on-year basis, it jumped 79.7% from Rs19,615.22 crore.
As a percentage of total loans, gross NPAs were 15.16% at the end of the December quarter as compared to 13.05% in the previous quarter and 8.94% in the year-ago quarter.