S&P Downgrades IDBI Bank On ‘Very Weak Asset Quality’
The bank’s asset quality is expected to remain very weak over the next 12 months, S&P said.
International ratings agency Standard & Poor's on Tuesday downgraded IDBI Bank to 'BB' citing "very weak asset quality" but maintained a stable outlook on the state-run lender.
“We expect the bank’s asset quality to remain very weak over the next 12 months,” Nikita Anand, credit analyst at S&P Global Ratings said.
The agency also expects the bank’s earnings to remain weak over the next 12-18 months “largely because of high credit costs and lower net interest margins, making the bank dependent on external capital infusions to meet its regulatory capital requirement".
IDBI Bank's non-performing loans ratio rose sharply to 15.2 percent in the December quarter from 10.9 percent in March 2016. It reported a loss of Rs 3,660 crore in fiscal 2016 and Rs 1,960 crore in the first nine months of fiscal 2017.
"Our view is based on the bank's customer concentration and a sizable exposure to the highly vulnerable corporate and infrastructure segments," she added.
The agency has reassessed the bank's risk position score to very weak from weak. Accordingly, it as lowered IDBI's stand-alone credit profile to B- from BB-.
One of the main reason for the very weak credit quality arises from the fact that IDBI has high single-name concentration, she said, adding its exposure to the top 20 customers was about 222 percent of the bank's equity as of March 2016, higher than the peer average (168 per cent for the top five public sector banks).
Moreover, IDBI also has high exposure to the troubled infrastructure segment (25.7 percent as of December 2016) making it more vulnerable than its peers.
Negative retained earnings led its capital base to decline with tier 1 ratio falling to 8.5 percent as of December 2016, which is marginally higher than the mandated buffer of 8.25 percent.
