Crisil downgrades Sidbi bonds to AA+

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Mumbai, Oct 8: The Credit Rating Information Services of India (Crisil) has downgraded the Small Industries Development Bank of India’s (Sidbi) outstanding bond issue to “AA+” from “AAA”. However, it has reaffirmed Sidbi’s fixed deposit (FD) programme at “FAAA”.

“The ratings were put on watch pending further clarity ont the change in Sidbi’s shareholding pattern from Industrial Development Bank of India (IDBI), its erstwhile 100 per cent owner,” Crisil said.
The rating revision reflects the reduced quality of government ownership in Sidbi as well as the increasing concerns regarding likely impact on Sidbi on deteriorating performance of state financial corporations (SFCs) and state industrial development corporations (SIDCs). However, these concerns are mitigated by Sidbi’s very strong capital adequacy position and healthy profitability. Sidbi is now the nodal agency for SFCs and in line with this, it has been decided to transfer IDBI’s equity stake in state finance corporations to Sidbi. The financial condition of SFCs, to whom Sidbi has significant exposure, has been steadily deteriorating, Crisil said.

The problems, confronting SFCs have so far merited only limited attention and action from the government. Sidbi’s asset quality and performance was likely to be adversely impacted in the event of precipitation of these problems and would be a key rating sensitivity, going forward, it added.

Crisil said Sidbi’s credit ratings derived support froms stand alone business and financial risk profile, but also from its total ownership by a single, strategic government entity (IDBI). Consequent to the amendment to the Sidbi Act, 51 per cent of its equity is now spread over 26 public sector banks and five financial institutions. The balance 49 per cent is held by IDBI.

The majority holding by a dispersed set of shareholders, having only limited strategic interest in Sidbi, reflects, in Crisil’s opinion, a reduced economic incentive and moral obligation on part of these shareholders to provide support to Sidbi, if required. Beyond the initial capitalisation, Sidbi has so far not required any additional capital infusion.