The bank's Baa3 senior unsecured debt and (P)Baa3 senior unsecured medium-term note (MTN) program ratings have also been affirmed.
In addition, Moody's has affirmed IDBI's baseline credit assessment (BCA) and adjusted BCA of b1, as well as its Counterparty Risk Assessment (CR Assessment) of Baa3(cr)/P-3(cr).
Moody's has also affirmed the bank's subordinated MTN rating of (P)B1 and junior subordinate MTN program rating of (P)B2, respectively.
The outlook on the long-term deposit and senior unsecured debt ratings is stable.
RATINGS RATIONALE
IDBI's asset quality is weak, with a gross nonperforming loan ratio of 8.9% as at end-December 2015.
In addition, the bank has meaningful exposures to large corporates, some of which show weak debt-servicing metrics. These exposures represent the key source of risk for the bank's asset quality.
More From This Section
At the same time, with the bank's BCA being already positioned at b1, its credit profile already factors in a significant amount of asset quality stress.
The bank's buffers are weak on an absolute basis, with loan-loss coverage at 63% and core equity tier 1(CET1) ratio at 7.84% at end-December 2015.
Nevertheless, based on these measures, the bank is in line with the other rated public sector banks.
It has been receiving capital on a consistent basis from the government over the last few years, with the latest infusion of INR22 billion provided in the quarter ending December 2015.
Driven by these ongoing capital infusions, we expect the bank's CET1 ratio to be maintained at a level of at least 7.5%. The bank's loan book is not growing; the year-on-year change in outstanding loans as of end-December 2015 was only 6%. This should also support the bank's capital ratios.
In addition, at the current BCA, the bank's funding and liquidity profile are key supporting factors.
Despite facing significant challenges with respect to asset quality, its deposit base has been very stable.
IDBI continues to record steady growth in its current and savings (casa) deposits, with the average casa balance in the quarter ending December 2015 increasing by 15% on a year-on-year basis.
We continue to incorporate a very high level of systemic support from the government.
IDBI is a public sector bank, with the Government of India (Baa3 Positive) holding a 80.16% stake.
We believe the government will provide a very high level of support to all public sector banks, as problems at even a small bank could lead to contagion risk for the other public sector banks.
The government has announced that it is open to the possibility of lowering its stake to below 50% in IDBI Bank.
If the government does lower its stake in such a manner, it would warrant a relook at our support assumptions for IDBI Bank.
However, given the significant execution challenges involved, we are not factoring this scenario in our current support assumptions.
WHAT COULD CHANGE THE RATINGS - UP
An upward change in its BCA is possible if IDBI substantially improves its profitability and Tier 1 capital position on an internally generated basis or by accessing the capital markets rather than relying on an equity infusion from the Indian government.
Significant improvement in asset quality accompanied with a large reduction in loan concentration risks will also lead to upward pressure on its BCA.
WHAT COULD CHANGE THE RATINGS -- DOWN
A further significant deterioration in asset quality, leading to further deterioration in the bank's loan-loss coverage and capital levels, could exert negative pressure on the BCA.
The current rating already factors in a very high level of government support. Hence, negative pressure on the bank's BCA will likely translate to negative pressure on the supported rating.
IDBI's ratings are as follows, following Moody's rating action:
IDBI Bank
- Local and Foreign currency bank deposit ratings affirmed at Baa3/ P-3; outlook on the long-term deposit rating is stable
- Foreign currency senior unsecured debt rating affirmed at Baa3; outlook on the ratings is stable
- Foreign currency senior unsecured MTN program rating affirmed at (P)Baa3
- Foreign currency subordinate MTN program rating affirmed at (P)B1
- Foreign currency junior subordinate MTN program rating affirmed at (P)B2
- BCA and Adjusted BCA affirmed at b1
- CR Assessment affirmed at Baa3(cr)/P-3(cr)
IDBI Bank, DIFC Branch
- Foreign currency senior unsecured debt rating affirmed at Baa3; outlook on the ratings is stable
- Foreign currency senior unsecured MTN program rating affirmed at (P)Baa3
- Foreign currency subordinate MTN program rating affirmed at (P)B1
- Foreign currency junior subordinate MTN program rating affirmed at (P)B2
- CR Assessment affirmed at Baa3(cr)/P-3(cr)
Powered by Capital Market - Live News
