Moody’s Investor Service has downgraded IDBI Bank’s base-line credit assessment to ‘b1’ from ‘ba3’ and the medium-term notes citing weak asset quality.
The rating agency that warned a significant deterioration in asset quality, leading to a further deterioration in the bank’s loan loss coverage and capital levels, would put negative pressure on the rating. IDBI Bank’s gross non-performing assets rose to 5.88% of advances in the January-March quarter from 4.9% a year ago. According to the rating agency, the lender’s impaired loan ratio rose to 14.7% at end March from 12.16% a year ago.
Further, the buffers that IDBI Bank has in terms of capital against further asset quality stress are also weak, said Moody’s. In addition, the lender’s capacity to beef up capital through internal accruals is constrained owing to lower margins and high credit costs. “While the pace of new impaired loan formation will remain slow in the year ending March 2016 (FY16) against the levels seen over the last three years, Moody’s expects rates to remain high,” said Moody’s in its release.
The rating agency said that capital remains a key credit weakness for the bank given that it did not get an infusion in the latest round.
On the overall banking sector, Moody’s said the government’s move to infuse capital based on performance could be detrimental to some banks. “The implementation of such a policy at this stage may be impractical, on account of the significant negative repercussions for the banking system,” the rating agency said.
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