Icra Down­grades IDBI Bank Bonds on Con­cerns over Cap­i­tal Ero­sion

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Mum­bai: Rat­ing agency Icra has down­graded the rat­ings is­sued on the bonds of IDBI Bank on con­cerns that huge losses posted by the bank could led to sig­nif­i­cant ero­sion in its cap­i­tal. The rat­ing for the in­fra­struc­ture bonds and tier II bonds was low­ered by one notch to AA- from AA while the rat­ing of the ad­di­tional tier I bonds and per­pet­ual bonds is low­ered to A- from AA-.

IDBI Bank posted a loss of ₹ 2,255 crore in the third quar­ter ended De­cem­ber 2016 as against net profit of ₹ 55 crore in the sec­ond quar­ter of Septem­ber 2016. Gross non­per­form­ing loans stood at 15.6%. Icra says that the bank would fall short of the min­i­mum cap­i­tal re­quire­ment also known as CET-1 (com­mon eq­uity tier -1) which is pegged at 6.75% for March 2017. Prior to ad­just­ing for losses, its CET 1 stood at 7.24%. The down­grade comes at a time when gov­ern­ment is con­tem­plat­ing ₹ 3,000 crore of cap­i­tal in­fu­sion in the bank to keep it afloat. Icra es­ti­mates that the bank would need cap­i­tal in­fuse of Rs 9,500– 10,000 crore. Last week, the board of the bank de­cided to sell non-core as­sets to raise cap­i­tal. ICRA says that with lim­ited vis­i­bil­ity on cap­i­tal in­fu­sion and con­tin­ued pres­sure on prof­itabil­ity, the cap­i­tal re­quire­ments are size­able and im­me­di­ate. It fur­ther said that the rat­ing re­mains con­strained by the con­tin­ued stress on prof­itabil­ity and as­set qual­ity, slower pace of re­cov­ery of slipped ac­counts and the sharper than ex­pected de­te­ri­o­ra­tion in prof­itabil­ity and as­set qual­ity.

Al­though losses of third quar­ter could be due one-time items such as rev­er­sal of un­re­alised in­come, yet Icra is of view that IDBI Bank’s earn­ing pro­file is likely to re­main weak over the medium term given the high non-per­form­ing loans and larger stan­dard re­struc­tured book and rel­a­tively high un-pro­vided NPAs. Rat­ing com­pany said that the out­look on the long-term rat­ing con­tin­ues to be neg­a­tive and ICRA is closely mon­i­tor­ing the bank’s cap­i­tal­i­sa­tion pro­file and its ef­forts to raise fresh cap­i­tal by March 31, 2017.

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