24 July 2019: India Ratings and Research (Ind-Ra) has revised IDBI’s long-term issuer rating at IND A and short-term issuer rating at IND A1 besides changing the rating outlook from ‘rating watch negative’ to ‘negative.’
The action comes a few days after the Enforcement Directorate conducted searches in connection with a Rs 743 crore IDBI Bank fraud where an accused created ghost projects in Andhra Pradesh and Telangana to siphon off the loan amount.
Ind-Ra said the negative outlook reflects its expectation that the bank is likely to require sizeable equity infusion over 2020-21. While LIC has articulated its commitment to the same, the quantum and timing are not known at present.
“The outlook also reflects the continued pressure on the bank’s franchise and its inability to materially grow its asset book, which could result in its operating buffers facing recovery challenges,” said the rating agency.
In addition, the negative outlook factors in Ind-Ra’s expectation that IDBI will continue to grapple under the Reserve Bank of India’s prompt corrective action framework (which will continue to weigh on its share of systemic assets and liabilities) and credit costs over corporate accounts in spite of a high coverage ratio.
“Its gross non-performing assets are among the highest in its peer group (27.47 per cent at end-FY19). There has been a weakening in IDBI’s standalone franchise, a continued fall in its share of systemic assets and liabilities, and a sharp deterioration in its asset quality. These three factors are likely to persist at least until the resolution of asset quality issues and the stabilisation of capital buffers,” said Ind-Ra.
“These concerns could ease out over medium-term if the expected strategy with LIC plays out and the franchise starts gaining market share,” it added.