Moody’s to review IDBI Bank for upgrade ahead of LIC deal

By: | Published: July 26, 2018 2:09 AM

Rating agency Moody’s on Wednesday placed on review for upgrade all long-term ratings of IDBI Bank and long-term ratings of the bank’s Dubai International Financial Centre (DIFC) branch.

moody, rating agency moodyMoody’s said it will review if the bank will benefit from affiliate support if LIC takes a majority stake.

Rating agency Moody’s on Wednesday placed on review for upgrade all long-term ratings of IDBI Bank and long-term ratings of the bank’s Dubai International Financial Centre (DIFC) branch. The review comes amidst Life Insurance Corporation of India’s (LIC) bid to acquire majority stake in the bank.

The outlooks for both the entities have been changed to ratings under review, it said. The primary driver, Moody’s said, is the announcement by IDBI Bank on July 17, that LIC has expressed interest in acquiring a 51% controlling stake in the bank through the preferential allotment of shares/an open offer.

“The review for upgrade will focus on the exact amount of fresh equity that LIC will inject into the bank and its impact on IDBI’s capitalisation, and the presence of any regulatory limitations on LIC’s ability to provide further support, and particularly on it ability to raise its stake above 51%,” it said.

Moody’s said it will review if the bank will benefit from affiliate support if LIC takes a majority stake. Specifically, in assessing whether to incorporate affiliate support into the bank’s rating, Moody’s will consider LIC’s relatively strong credit profile, its controlling ownership as well as the reputational risks involved if IDBI Bank were to fail.

“At the same time, Moody’s assessment of affiliate support will also consider the relatively low strategic importance of IDBI Bank to LIC, and the fact that the proposed investment will be funded by policyholder funds rather than LIC’s own funds,” it said, adding that the use of policyholder funds for this investment means that the company’s authority to make investment decisions is constrained by investment guidelines for insurance companies in India.
The agency said it assumes a very high level of support from the government for the bank, in line with all Indian PSBs.

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