The upgrade follows the Life Insurance Corporation acquiring 51 percent stake in the crippled lender which has around 32 percent of its assets as dud loans, thereby, improving its solvency.
International rating agency Moody’s Wednesday upgraded the long-term foreign currency ratings of IDBI Bank to Ba2 from B1 along with an outlook upgrade to positive from an ‘under-review’ category. The upgrade follows the Life Insurance Corporation acquiring 51 percent stake in the crippled lender which has around 32 percent of its assets as dud loans, thereby, improving its solvency. On Monday, the lender received Rs 5,030 crore from the allotment of new shares to LIC. This was followed by Rs 14,500 crore in capital infusion from the previous tranche on December 28, 2018.
“The upgrade reflects the improved solvency of the bank following the completion of a significant capital infusion,” the rating agency said. It said with capital infusion, the bank’s CET1 ratio will increase by 10 percentage points, based on the its risk weighted assets as of September 2018. Additional capital will also enable the bank to increase provisions for bad loans.
The bank’s gross and net NPL ratio was 31.8 percent and 17.3 percent, respectively as of September 2018. “Given the high amount of NPL recognition already done, we expect the NPL formation rate to significantly decline,” the agency said. If some of the capital received is used to increase provision coverage, profitability can improve significantly as a result of lower future credit costs.
“The positive outlook factors in this scenario,” it said, adding rating of its Dubai International Financial Centre branch is upped to Ba2 from B1.