1. Moody’s downgrade heightens risk to IDBI bank solvency; lender pasts Rs 3,200 cr loss in quarter

Moody’s downgrade heightens risk to IDBI bank solvency; lender pasts Rs 3,200 cr loss in quarter

Ratings agency Moody’s on Thursday downgraded IDBI Bank citing quality issues and heightened risk to the lender’s solvency.

By: | New Delhi | Updated: May 26, 2017 6:31 AM

 

Ratings agency, Moody, IDBI Bank, lender’s solvency Ratings agency Moody’s on Thursday downgraded IDBI Bank citing quality issues and heightened risk to the lender’s solvency. (PTI)

Ratings agency Moody’s on Thursday downgraded IDBI Bank citing quality issues and heightened risk to the lender’s solvency. The Mumbai-headquartered bank, which posted a net loss of Rs3,200 crore in the March, 2017 quarter, wider than Rs1,736 crore loss reported in Q4FY16, had been downgraded by Crisil last week. Moody’s expects the bank’s asset quality issues to persist, pressuring profitability and limiting its ability to generate internal capital. “The bank’s buffers against further asset quality stress remain weak. Its capacity for internal capital generation will remain constrained by low net interest margins and high credit costs,” the rating agency said in a statement, adding that it has placed the bank’s instruments under review for further downgrade.

 

On May 9, the Reserve Bank of India (RBI) had initiated a prompt corrective action (PCA) plan for the lender given the high net non-performing assets (NPA) ratio — 13.2% at the end of March, 2017 — and negative return on assets (RoA) of -1.39%. The central bank placed restrictions on dividends to be distributed and the profits to be remitted and asked it to maintain higher provisions.

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The bank’s stressed assets (non-performing loans plus standard restructured loans) ratio stood at 29% sharply higher than the 19% in March, 2016. The lender also reported its highest ever gross non-performing asset (NPA) ratio at 21.25% in Q4 FY17.

Among the securities downgraded by Moody’s are local and foreign currency bank deposit ratings, which have been lowered to Ba2/Not Prime from Baa3/Prime-3. Moreover, IDBI Bank, DIFC Branch’s senior unsecured debt and senior unsecured medium-term note (MTN) program ratings have been dropped to Ba2/(P)Ba2 from Baa3/(P)Baa3. The bank’s baseline credit assessment (BCA) and adjusted BCA have been lowered to caa1 from b1.

Meanwhile, IDBI Bank said in a statement it has crafted a “comprehensive turnaround strategy, with a focus on augmenting the capital base and recovery from NPAs”. MD & CEO Mahesh Kumar Jain said the bank would prioritise recoveries and check further slippages. Jain said additions to the corporate loan book would be restricted and the lender would focus on retail and priority sector assets.

At present, a big chunk of loans is to corporates while retail assets constitute just 43% of its total advances. The bank plans to raise additional capital in the medium term; it received a capital infusion of Rs 1,900 crore via the government’s subscription to its preferential share allotment earlier this year. Furthermore, Life Insurance Corporation of India (LIC) has also subscribed to the bank’s preferential equity issue.

Additionally, Jain said, capital adequacy would be improved through sale of non-core assets, continued GoI support and churning of corporate loan book to reduce risk weight of the portfolio. At the end of Q4 FY17, the bank’s common equity tier 1 ratio (CET1) plus capital conservation buffer (CCB) stood at 5.64%, down 234 bps y-o-y and its total capital adequacy ratio (CRAR) stood at 10.7%, down 97 bps y-o-y.

Following the PCA taken by the central bank, the government may be asked to infuse capital into the bank. That apart, the lender would also be stopped from expanding its branch network and management compensation and directors’ fees would be capped.

Earlier in 2015, the central bank had initiated PCA against Indian Overseas Bank (IOB) and against United Bank of India in 2014. The RBI had barred UBI from taking an exposure of more than Rs 10 crore per client.

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