Crisil has appraised the managements of both institutions and continued to maintain the `AAA' ratings on long term debt and `FAAA' on fixed deposit programmes for the present.

In a statement here, the agency said it has completed the review of the outstanding ratings of ICICI and IDBI and identified the latent vulnerability in the asset portfolio.

Crisil said the basis of its concern stems from the stress caused on the institutions' asset portfolios due to the continued weaknesses in certain sectors of the industry.

The asset quality stress has been caused by the combination of increased competition from within the domestic industry and imports, economic slowdown, south east Asian crisis affecting commodity prices and weak investment sentiments,it added.

The key rating sensitivities in IDBI's risk profile are the increasing asset quality risks which have led to increased non-performing assets (NPA) and decline in profitability, partially manifested in its results for financial year 1999, the agency said. Increase in non-performing loans and consequent income derecognition and higher provisioning have been reported by IDBI and ICICI, which have affected the institutions' profitability, Crisil said.IDBI's latent problems associated with the exposures in the commodity related sectors like steel, textile, paper, chemicals and man-made fibres could aggravate in future and impact the overall risk profile, it added.Crisil's concerns emanate more from the weakened capital structure of vulnerable entities in these sectors and their ability to service the debt obligations towards these institutions, and not so much the profitability or lack thereof of these entities.

The situation has been aggravated by the difficult conditions in the primary marketwhich has caused the vitiation of the capital structure of the borrowers.

The problem of asset quality has become severe due to the inadequate foreclosure laws, long drawn out legal proceedings and other legal hurdles that continue to frustrate the financial sector in recovering their dues.ICICI has, however in the past demonstrated its ability to diversity its asset base, underwrite good quality credit albeit the difficult economic scenario. IDBI's rating also positively factors its strengths in resource raising, its liquidity position, comfortable asset liability maturity profile and the robust Tier I capital adequacy levels.