Icra keeps ratings of IDBI Bank's bond programmes under watch due to deterioration in capital adequacy ratios

Mumbai: Rating agency Icra Monday said it has placed long-term ratings for Rs 4,286.20 crore upper tier II bonds programme and Rs 1,708.80 crore Basel II compliant perpetual bonds of IDBI Bank on Rating Watch with Developing Implications (RWD). “The ratings on the upper tier II bonds and Basel II compliant perpetual bonds are placed on RWD due to the deterioration in the capital adequacy ratios, which were below the regulatory levels,” Icra said in a release on Monday. Maintaining the capital ratios above regulatory levels is critical for servicing the banks Basel II debt capital instruments. In May 2018, the rating agency had highlighted the banks weak capital ratios and had noted that it would require a regular capital infusion from the government to keep its capital ratios above regulatory levels. In June 2018, IRDAI approved life insurance major LIC’s proposal to take over 51 percent stake in IDBI. [caption id=“attachment_4496675” align=“alignleft” width=“380”] Representational image. Reuters.[/caption] LIC is proposed to increase it’s stake to 51 percent from 7.98 percent, through fresh capital infusion and secondary market purchase. On August 28, 2018, LIC has given in principle approval to infuse capital in the bank, raising its shareholding to 14.90 percent, before the acquisition of majority ownership from the government. “The transaction, which would raise the capital ratios to the regulatory levels in the immediate term and thereby enable the servicing of the Basel II capital instruments, requires the approval of the bank’s shareholders,” the rating agency said. In the first quarter of FY19, the bank’s asset quality ratios deteriorated with GNPAs and NNPAs at 30.78 percent and 18.76 percent, respectively. Its profitability remains under pressure with compressed net interest margins (NIMs) and net interest income (NII) coupled with high credit costs. The rating agency said the banks profitability, and consequently, its capital position is expected to remain weak. The outlook may be revised to stable if there is a significant improvement in its capitalisation, solvency and asset quality indicators. The ratings, however, may be downgraded if the bank is unable to raise sufficient capital in a timely manner to augment the capital adequacy ratios, thereby impacting its ability to service its debt capital instruments, it said.