Fitch Ratings India has downgraded the ratings of term lending institutions Industrial Development Bank of India (IDBI) and IFCI.
The rating agency has downgraded the long- and medium-term bonds, fixed deposits, certificate of deposits ratings of IDBI from Ind AAA to Ind AA+. The rating agency said the downgrade reflects the weakening financial profile amid the continuing slowdown and hardening operating environment.
"We do not agree with the downgrading of the institution," IDBI chairman and managing director P P Vora said. The entire economy is facing an industrial slowdown, and this is not unique to IDBI alone, he added.
Vora said that with the various steps the financial institution is taking, things have started looking up. IDBI has identified a three-pronged agenda, wherein fresh loans are being sanctioned only to triple A and double A-rated corporates, to ensure no further generation of non-performing assets. It has also embarked on an aggressive recovery of old NPAs, and avoidance of wasteful expenditure. "The total picture will change, and things have started looking up," he added.
Fitch has also downgraded IFCI's long and medium-term instruments from Ind AA- (rating watch negative) to Ind BBB+.
The FI's preference shares and fixed deposit ratings have been downgraded from Ind AA- (rating watch negative) to Ind BBB+ (PS) and Ind BBB+ (FD) respectively.
The downgrade, according to Fitch, reflects the IFCI's weakening financial profile on account of high NPA levels, weak capital ratios and depressed profitability.
The Credit Rating Information Services of India Ltd (Crisil) had, in July this year, downgraded IDBI. IFCI's short, medium and long-term ratings were downgraded by Icra in October.
Fitch added that in an increasingly liberalised environment IDBI's performance has steadily declined, since the mid-1990s, and its main business of development banking has been increasingly under pressure. "This has been accompanied by deteriorating asset quality, partly a result of the slowdown but more due to the problems faced by certain commodity sectors that were affected the most due to liberalisation and where IDBI had large exposures. Fitch said, due to the slowdown in the economy, IDBI's short-term performance is expected to remain weak and its asset quality and profitability will continue to be under pressure. The long-term solution of IDBI's growth appears to be to convert itself into a universal bank.
In the short-term, IFCI reports mismatch in maturity profile of its rupee as well as foreign currency assets and liabilities, thus facing liquidity pressure, Fitch said. In addition, increased provisioning, high non-accrual drag on account of deteriorating asset quality and high funding costs are expected to put pressure on IFCI's profitability, the rating agency added.
