Fitch downgrades DCB debt programme

International rating agency Fitch Ratings has downgraded the national rating of Development Credit Bank's (DCB) Rs 1,600 crore subordinated debt programme to A from A+.

The downgrade reflects the delay in implementing the bank's plan to write off the legacy non-performing loans (NPLs), and diversify and grow its income streams, said the rating agency.

The slow down in deposit accretion and the exit of a few business heads (including the CEO) have affected performance in the financial year 2005, it added. V Seshadri, managing director, DCB, left the bank on the completion of his tenure as the central bank refused to extend his term early this year.

At the same time, the current rating continues to draw significant comfort from the demonstrated commitment of Aga Khan Fund for Economic Development (AKFED) to help improve its performance, said the rating agency. AKFED holds 69 per cent stake in the private sector bank.

The capital infusion of $32 million in March 2005, equivalent to 45 per cent of DCB's equity in fiscal 2004, has enabled the bank tackle the legacy issue of NPLs, said the bank spokesperson. The capital infusion was necessary as the bank had stepped up the loan loss provisions in the financial year 2005.

"We are aware of the downgrade and are pleased to know that the bank's rating is still at investment grade level," said DCB spokesperson.

"The bank is, as Fitch points out, in the process of repositioning so as to continue the progress made in treasury and consumer banking in particular," he added.

The rating agency further added that it will continue to monitor the bank's progress in improving its performance, completing the senior management recruitment, and infusing further capital as planned, which are reflected in the evolving outlook.