1. Fitch downgrades IDBI Bank’s rating on deteriorating finances

Fitch downgrades IDBI Bank’s rating on deteriorating finances

Fitch today downgraded IDBI Bank's rating reflecting the deterioration of its financial profile in the last two years and high risks of further losses and capital erosion.

By: | New Delhi | Published: May 29, 2017 5:32 PM
Fitch, IDBI, IDBI bank,IDBI Bank's rating, fitch downgrades IDBI Bank's rating, deteriorating finances, banking Fitch today downgraded IDBI Bank’s rating reflecting the deterioration of its financial profile in the last two years and high risks of further losses and capital erosion. (Reuters)

Fitch today downgraded IDBI Bank’s rating reflecting the deterioration of its financial profile in the last two years and high risks of further losses and capital erosion. Fitch Ratings has downgraded IDBI Bank Long-Term Issuer Default Rating to ‘BB+’, from ‘BBB-‘, with a stable outlook. Viability Rating too has been cut to ‘ccc’, from ‘bb-‘, the US-based agency said in a statement. It said the Viability Rating reflects the deterioration of its financial profile in the last two years and our expectation that both asset quality and capital will remain significant ongoing weaknesses.NPLs (Non Performing Loans) increased by 80 per cent in the financial year ending March 2017, to 21 per cent of loans triggering provisions and a loss equating to nearly 20 per cent of its outstanding equity, Fitch said.

The government injected around USD 300 million before the year-end, but it was far outweighed by losses that were nearly three times higher. “We believe the risk of further losses and capital erosion is high, given the possibility of additional NPLs… However, the government is likely to continue providing capital support to ensure the bank does not breach minimum regulatory capital ratios — in line with its own support stance,” Fitch said. Last week, Moody’s Investors Service had downgraded PSU lender IDBI Bank’s rating citing heightened risk to solvency position and extremely weak capitalisation.

You May Also Like To Watch This:

Fitch said it expects the bank’s majority government ownership to remain in place and that authorities are willing to provide support. “The Viability Rating has been downgraded due to a sharper-than-Fitch-expected deterioration in IDBI Bank’s financial profile, as reflected in its much lower core capitalisation following two consecutive years of rising NPL and heavy losses,” Fitch said, adding, it expects these pressures to remain over the medium term.

It said IDBI Bank’s competitive position and its systemic importance will continue to be eroded as it deals with poor asset quality and a weak capital position. Fitch said the Viability Rating is sensitive to the bank’s ability to address its capital position. If the bank is unable to raise a significant portion of its capital needs, independent of the government, for example, via an equity stake sale, balance sheet cuts or asset sales, Fitch is likely to downgrade the Viability Rating to ‘f’, it said. “A large capital injection by the government to recapitalise the bank to address a material shortfall in minimum capital ratios will be seen as extraordinary support and the agency will view the bank as having failed,” Fitch added.

  1. No Comments.

Go to Top