Basel III Tier 2 bonds - IND A/RWN (Downgraded; placed on RWN)
Additional Basel III Tier 1 bonds - IND BBB+/RWN (Downgraded; placed on RWN)
Infrastructure bonds - IND A/RWN (Downgraded;placed on RWN)
The downgrade reflects the inadequate progress as per Ind-Ra's expectations with respect to the quantum and pace of equity infusions, which is critical for providing sufficient cushion for the credit cost impact of the stressed asset pool. Although the liquidity position of the bank seemed adequate at end-September 2019, Ind-Ra believes that, in the absence of improvements on the capital side, the ability of the bank to manage its asset and liability maturities might be tested further. In Ind-Ra's opinion, the bank is likely to face balance sheet expansion challenges over the short-to-medium term as it implements new strategies, and it will also have to continue to deal with the overhang of stressed assets and resultant credit costs and the possibility that its steady state non-interest income could reduce substantially from the historical peaks under a benign case scenario; these three factors could have at least a medium-term bearing on the income profile of the bank. Some of these issues could aggravate if the bank is unable to raise adequate amount of equity in a timely manner.
In the near term, Ind-Ra expects certain standard stressed group exposures (rated BB and below) of the bank to continue to slip into the non-performing category. The need to accelerate provisions on existing GNPAs and additional slippages along with the reduced pool of performing assets would keep the profitability of the bank under pressure. The RWN reflects the dependency of the rating level on the timing and quantum of equity raise by the bank.
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