Moody’s Investors Service on Tuesday downgraded IDBI Bank local and foreign currency bank deposit ratings to B1 from Ba2, citing reduction in the amount of government support incorporated into the bank’s ratings. “The rating action is driven by a reduction in the amount of extraordinary government support incorporated into the bank’s ratings and its weak standalone credit profile,” Moody’s said, adding that the outlook has been revised to stable. “At the same time, the change in outlook to stable reflects Moody’s expectation that the bank’s standalone credit profile will not further materially deteriorate,” it said.
The rating agency has also downgraded the foreign currency senior unsecured rating of IDBI Bank and its Dubai International Financial Centre (DIFC) branch to B1 from Ba2. Similarly, Moody’s has downgraded the foreign currency senior unsecured MTN programme rating of IDBI Bank and its DIFC branch to (P)B1 from (P)Ba2. The rating agency said it has lowered the support assumption for IDBI towards the mid-point of the ‘very high’ support bucket range from the top end of the ‘very high’ support bucket range.
Since May 2017 — when Moody’s initiated its review for downgrade — IDBI Bank has received Rs 1,860 crore of new equity from the government and Rs 390 crore of new equity from the Life Insurance Corporation of India (LIC). “Nevertheless, IDBI remains significantly undercapitalised, with a CET 1 ratio of only 6.5%, which is below the current minimum core equity tier (CET 1) ratio norms after factoring in the requirements of capital conservation buffers,” Moody’s said.
Moody’s added that the government’s capital infusions have been insufficient to repair the bank’s balance sheet. “If the bank is able to execute on the sale of its 16.25% stake in Small Industrial Development Bank of India (SIDBI, unrated), there could be some accretion to capital. However, we expect the bank to continue to report losses for the rest of the financial year ending March 2018 which would further reduce capital levels,” it explained.