Moody's downgrades IDBI Bank citing bad loans, weak funding; bank says govt aid continues
The rating actions reflect the significant deterioration in IDBI's financial profile, driven by asset quality issues
New Delhi - Moody's Investors Service on Thursday downgraded state-owned IDBI Bank's rating citing asset quality concerns and extremely weak capitalisation, which the bank refuted saying it continues to get government support.
The rating actions reflect the significant deterioration in IDBI's financial profile, driven by asset quality issues and the heightened risk to its solvency position, the ratings agency said in a statement.
The local and foreign currency bank deposit ratings has been downgraded to'Ba2/Not Prime' from 'Baa3/Prime-3', Moody's said, adding theratings are under review for further downgrade.
Moody's said over the next 12-18 months, asset quality issues of IDBI bank are likely to persist, which will put pressure on the bank's profitability and limit its ability to generate internal capital.
At the end of March 2017, IDBI's impaired loans (non- performing loans plus standard restructured loans) ratio rose to 29 percent versus 19 percent a year earlier.
In addition, loan loss reserves, when adjusted for the restructured loans, stood at about 34 percent at the end of March 2017 -- which was one of the weakest among Moody's-rated public sector banks in India, the US-based agency said.
It added that the bank's buffers against further asset quality stress remain weak.
Its capacity for internal capital generation willremain constrained by low net interest margins and high credit costs.
"Moody's expects the bank to remain dependent on capital infusions from the government to meet the minimum capital standards," it said.
It said that given the current fragile financial strength of many public sector banks, including IDBI, "any reduction in government support will result in lower levels of confidence in such banks, and could negatively affect systemic stability".
The bank, however, said in a separate statement that the government, which has infused Rs 1,900 crore in the lender this year, continues to support it.
The bank added it plans to raise capital through sale of non-core assets and churning of corporate loan book. It said it has crafted a comprehensive turnaround strategy with a focus on augmenting the capital base and recovery from NPAs.
"We will look at aggressive recovery and cost cutting measures and plan on churning our corporate book and risk weighted assets which should also ease the pressure on capital," said IDBI Bank MD and CEO Mahesh Kumar Jain.
Headquartered in Mumbai, IDBI Bank held assets totalling Rs 3.62 lakh crore at end-March 2017.
Find latest and upcoming tech gadgets online on Tech2 Gadgets. Get technology news, gadgets reviews & ratings. Popular gadgets including laptop, tablet and mobile specifications, features, prices, comparison.
Earlier, similar action was initiated against other state-owned lenders -- IDBI Bank, Indian Overseas Bank and UCO Bank
The passage of land acquisition and Goods and Services Tax (GST) Bill has stalled, which illustrates that "political friction will keep the reform process uneven and slow-moving
Moody's Investors Service today cautioned that a prolonged worsening in asset quality at PSU banks is the main threat to India's sovereign credit profile nd made a case for the government bearing some of the cost of cleaning up bank balancesheets.