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Crisil
downgrades IDBI bonds, certificate of deposit programme
Our
Banking Bureau
Mumbai, July 17: The Credit Rating Information Services
of India Ltd (Crisil) on Tuesday downgraded the bonds and
certificate of deposit (CD) programme of the Industrial Development
Bank of India (IDBI) to ‘AA’ indicating high safety from ‘AAA’
indicating highest safety.
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IDBI terms
it irrational, ridiculous
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Sitanshu Swain
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Mumbai, July 17: IDBI on Tuesday
summarily rejected the downgrading of some of its instruments
by Crisil, terming it ‘‘irrational and ridiculous’’. IDBI
is also likely to decide not to use the Crisil rating,
and may replace Crisil with another rating agency, along
with Icra.
Speaking to The Financial Express, a top
IDBI official said that the real issue for the downgrading
which Crisil had attributed — that of recapitalisation
— did not hold, as the institution’s capital adequacy
ratio (CAR) is currently pegged at 15 per cent. The tier-I
ratio itself is at 12 per cent, the official said.
The official said IDBI’s plan to go in for an American
Depository Receipt (ADR) issue still holds and work on
US GAAP accounting norms was on in full swing. The official
said last year too Crisil had threatened the institution
with a downgrade, but was persuaded to refrain from doing
so at the last moment. He also said the economic slowdown
and low credit offtake were problems which afflicted the
entire economy and IDBI could not be isolated from it,
warranting a downgrade. |
"The rating revision reflects the deterioration
in asset quality and the non-fructification of the earlier
indicated recapitalisation plan. Further, the institution
has witnessed a continuous decline in its profitability due
to a combination of asset quality problems and contraction
in spreads. IDBI has initiated steps to improve asset quality
through considerable emphasis on restructuring and resolving
problem loan to arrest further slippage in asset quality",
Crisil said.
IDBI’s resource profile is characterized by its strong market
position in the domestic wholesale debt market, and demonstrated
ability to raise resources in the international markets. IDBI
has been able to prepay a significant portion of high-cost
debt in 2000-01, which is expected to lead to reduction in
interest costs.
IDBI has also begun the process of managing its balance sheet
through asset-liability management so as to contain the impact
of interest rate movements on its net interest income.
Crisil is of the view that IDBI faces challenges in repositioning
itself to compete effectively and sustain its mrket position
in an increasingly competitive financial services sector.
"Challenges on the asset quality and profitability fronts
are also expected to continue in the immediate future. However,
IDBI’s ratings continue to derive strength from its strong
market position in the wholesale lending segment and comfortable
liquidity position. Furthermore, IDBI’s ratings also benefit
from a high likelihood of support from the government given
its majority government ownership and its important position
in the financial system," Crisil noted.
IDBI is one of the largest development financial institutions
in the country, with an asset base of Rs 71,000 crore as at
March 31, 2001 engaged primarily in providing long-term project
finance.
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