Money & Banking

Fitch affirms IDBI Bank’s long-term IDR at BB+

PTI Mumbai | Updated on November 01, 2018 Published on November 01, 2018

Fitch Ratings on Thursday affirmed IDBI Bank’s long-term issuer default rating (IDR) at ‘BB+’ and its viability rating (VR) at ‘ccc’.

The rating agency also removed the lender’s VR from ‘rating watch evolving’ It had placed the state-run lender under rating watch evolving in December last year.

The government’s willingness to support the bank remains intact given its size and systemic role, although LIC will be the bank’s first port of call for support once it becomes the majority shareholder of IDBI Bank, it said.

The government is diluting its 79 per cent stake in IDBI Bank to below 51 per cent, while LIC plans to raise its shareholding in IDBI Bank to 51 per cent from 14.9 per cent.

“The removal of the VR from rating watch evolving reflects better visibility on the potential new equity IDBI Bank will receive from its stake sale to LIC,” the agency said.

The bank received Rs 2,100 crore in August from LIC when the insurer increased its stake in the lender to 14.9 per cent, and expects to receive an additional Rs 20,000 crore of fresh equity by March 2019.

The significant improvement in the bank’s core capital from the fresh equity injection could more than offset downside risk in asset quality and earnings, on which we have a weak near-term outlook, it said.

The rating agency said the bank’s IDR ratings reflects expectation of a moderate probability of extraordinary state support given the bank’s market position, systemic importance and linkages to the state.

It noted that the lender’s competitive position has eroded as it deals with its balance-sheet challenges, but the rating agency believes the bank’s moderate size, significant deposit base and ultimate state ownership will remain instrumental in underpinning government support prospects. The bank’s non-performing loan (NPL) ratio stood at 31 per cent in June.

The rating agency believes the bank’s core capital buffers, such as common equity tier 1 (CET1) of 5.8 per cent in Q1 of FY19, show potential for significant improvement by FY19.

Published on November 01, 2018
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