S&P Global Ratings expects IDBI Bank’s asset quality to deteriorate in the next 12 months, owing to large corporate exposure. The rating agency on Monday lowered the long-term foreign currency issuer credit rating of IDBI Bank to ‘BB’ from ‘BB+’, citing weak asset quality expectations.
“We expect that IDBI will continue to see pressure on its asset quality in the next 12 months, mostly because of its huge proportion of infrastructure loans, which constitute over 25% of the lender’s book by December end,” said said Nikita Anand, associate, financial institutions ratings, S&P Global Ratings. The rating agency opines that the current downcycle in India has been protracted and expects only a gradual improvement in the corporate sector. In a webcast presentation with reporters organised by S&P Global Ratings, Anand explained that although most public sector banks did see their slippage ratio coming down in the December quarter of the current financial year, the gross non-performing assets (NPA) for most of them have been on an increasing trend, with IDBI among the worst. “IDBI Bank’s transition over the last nine months lay bare the bank’s sharp deterioration of asset quality, with NPAs crossing the 15% mark from 11% nine months back,” said Anand.
IDBI Bank, the rating agency said, has high single-name concentration. “Exposure to the top 20 customers was about 222% of the bank’s equity as of March 31, 2016, higher than the peer average (168% for the top five Indian public sector banks),” it said.
“The bank has a large amount of strategic debt restructuring. IDBI’s standard restructured loans, at 7.2% of total loans, also remain higher than its peers. All these factors reflect a significant weakness in the bank’s asset quality,” Anand said. The lenders stress assets is around 22%, if the standard restructured asset book is added with gross non-performing loans, this amount of weakness in asset quality has ramification on rating factors, noted the rating agency. “This kind of deterioration and high slippages keeps credit provisioning cost very high which eventually drains out the banks revenue,” said Anand.
The lender reported an aggregating net loss of Rs 3,600 crore in fiscal 2016 and R1,900 crore in the first three quarters of FY-17.