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Nachiket Kelkar
Nachiket Kelkar

Banking

IDBI Bank ratings downgraded as asset quality worsens

idbi-bank Representational image | Reuters

There is more trouble for IDBI Bank as ratings agency ICRA has downgraded its ratings on various debt instruments of the state-run lender from “AA- (negative)” to now putting it on “rating watch with negative implications.” The move comes just days after the Reserve Bank of India invoked the prompt corrective action (PCA) framework against the lender as bad loans surged and losses widened.

The ratings downgrade comes in the wake of the bank's substantially weak operating and financial performance over the last fiscal year, which has led to significant erosion of its capital.

For the year ended March 2017, IDBI Bank reported a net loss of Rs 5,158 crore, significantly higher than Rs 3,665 crore in the previous fiscal year.

Its gross non-performing assets stood at Rs 44,753 crore or 21.25 per cent, against gross NPAs of Rs 24,875 crore or 10.98 per cent, a year ago.

Earlier this month, RBI invoked PCA framework against the lender, under which there will be restrictions on the bank's business activities, including curbs on lending and branch expansions.

Downgrading its ratings on Tuesday, ICRA said the bank's asset quality pressures are likely to remain high over the current fiscal year.

“With low provision cover and high Net NPAs and an expectation of further weakening in asset quality, the bank’s internal capital generation will remain weak over the medium term,” the ratings agency said.

Furthermore, with RBI invoking the PCA framework, IDBI Bank is likely to be placed in one of the higher risk threshold levels necessitating various corrective actions and thus will be further strained to meet the increasing capital requirements under the Basel III norms, it added.

After the PCA framework was invoked, the bank had said the action was unlikely to have any material impact on its performance and would contribute to improving the internal controls of the bank.

However, according to ICRA, the bank will require huge capital infusion going ahead in the wake of the huge losses.

“ICRA expects the bank to require an equity infusion of Rs 9,500-12,000 crore during FY2018-19 which, at 70-85 per cent of its current market capitalisation, is large. If the bank reports losses during FY2018-19, the capital requirement will increase by a similar amount.”

ICRA is not the only one to downgrade ratings on IDBI Bank. Earlier this year, CRISIL and CARE too had downgraded their ratings on several tier II bonds of IDBI Bank amid deteriorating asset quality.

Meanwhile, a section of IDBI Bank employees and officers union had given a strike call on Tuesday, demanding a revision in pay and allowances, apart from other issues.

IDBI Bank shares were down 0.8 per cent at Rs 65.60 on Tuesday. The stock has been under pressure, plunging 19 per cent over the last three months. In comparison, the BSE Bankex index has risen over seven per cent in the same period.

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Topics : #RBI | #banking

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