CARE Ratings has upgraded the rating of IDBI Bank’s Basel III Compliant Tier II Bonds aggregating ₹2,000 crore from “A+” to “AA-” and revised the outlook from “positive” to “stable”.

The credit rating agency also reaffirmed the “Al+” rating for the bank’s Certificate of Deposits aggregating ₹10,000 crore.

The revision in the rating assigned to the long-term debt instruments of IDBI Bank factors in the continued improvement in the bank’s financial risk profile, with improvement in profitability and asset quality parameters with comfortable capitalisation levels over the past two years ended September 30, 2023, the agency said.

The rating continues to factor in the bank’s franchise with an increasing focus on retail lending in the past few years and relatively high current account savings account (CASA) deposit proportion.

The agency observed that the private sector bank has maintained comfortable capitalisation levels with more than adequate cushion over the minimum regulatory requirement, supported by a significant amount of equity infusion by the Life Insurance Corporation of India, the government of India, and qualified institutional placement (QIP), as well as internal accruals after the bank started posting profits from FY21 onwards.

The rating remains constrained on account of the weak asset quality parameters of the bank as compared to other private sector banks, although the ratios have improved considerably in the past two years on account of writeoffs done by the bank and lower slippages, it added.

Moreover, in addition to the provisions required as per the regulatory guidelines, the bank also has contingency provisions which further provides a cushion to mitigate any incremental stress that may arise in the asset book.

CARE Ratings further noted that LIC and GoI together hold 94.71 per cent shareholding in the bank, and both have stated their intent to divest their shareholding in the bank through a strategic stake sale with an intent to hand over management control in the bank.