Icra Downgrades IDBI Bank Bonds on Concerns over Capital Erosion
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.