The rating actions reflect the significant deterioration in IDBI’s financial profile, driven by asset quality issues and the heightened risk to its solvency position, the ratings agency said in a statement.
The local and foreign currency bank deposit ratings has been downgraded to ‘Ba2/Not Prime’ from ‘Baa3/Prime-3’, Moody’s said, adding the ratings are under review for further downgrade.
Separately, IDBI Bank said the government, which has infused Rs 1,900 crore in the lender this year, continues to support it.
The bank added it plans to raise capital through sale of non-core assets and churning of corporate loan book.
Moody’s said over the next 12-18 months, asset quality issues of IDBI bank are likely to persist, which will put pressure on the bank’s profitability and limit its ability to generate internal capital.
At the end of March 2017, IDBI’s impaired loans (non- performing loans plus standard restructured loans) ratio rose to 29 per cent versus 19 per cent a year earlier.
In addition, loan loss reserves, when adjusted for the restructured loans, stood at about 34 per cent at the end of March 2017 — which was one of the weakest among Moody’s-rated public sector banks in India, the US-based agency said.
It added that the bank’s buffers against further asset quality stress remain weak.
Its capacity for internal capital generation will remain constrained by low net interest margins and high credit costs.
“Moody’s expects the bank to remain dependent on capital infusions from the government to meet the minimum capital standards,” it said.
It said that given the current fragile financial strength of many public sector banks, including IDBI, “any reduction in government support will result in lower levels of confidence in such banks, and could negatively affect systemic stability”.
IDBI to focus on augmenting capital base, NPA recovery
IDBI Bank in a separate statement said it has crafted a comprehensive turnaround strategy with a focus on augmenting the capital base and recovery from NPAs.
The bank said it plans to raise capital through sale of non-core assets and churning of corporate loan book to reduce risk weight of the portfolio.
The government has already infused Rs 1,900 crore in the bank this year and LIC has also subscribed to its preferential issue.
IDBI Bank MD and CEO Mahesh Kumar Jain said the government continues to support the bank.
“We will look at aggressive recovery and cost cutting measures and plan on churning our corporate book and risk weighted assets which should also ease the pressure on capital,” he said.
Headquartered in Mumbai, IDBI Bank Ltd held assets totalling Rs 3.62 lakh crore at end-March 2017.