IDFC Bank’s (IDFCB) ₹42,200-crore senior bonds (to be transferred from IDFC) and the proposed ₹10,000-crore senior infrastructure bonds have been assigned a ‘Provisional IND AAA’ rating, with a stable outlook, by India Ratings and Research (Ind-Ra).

The assignment of the final rating is subject to the inclusion of IDFCB in the Second Schedule of the Reserve Bank of India (RBI) Act, 1934, it added.

IDFCB is likely to start banking operations from October 1, and it will be 53 per cent owned by IDFC Financial Holding Company, a 100 per cent subsidiary of IDFC (IND AAA/Stable), with the rest held by IDFC’s shareholders.

The rating reflects IDFCB’s robust credit buffers and Ind-Ra’s expectations of its ability and willingness to raise equity and maintain capital buffers superior to its sector peers, Ind-Ra said. This would enable it to cushion downside risks stemming from its existing concentrated wholesale lending book, it added.

IDFCB’s starting Tier I capital ratio of around 18 per cent will be the highest among its sector peers while its proactive general loan loss provisioning of around 8 per cent (ahead of the sector) provides significant comfort against potential stressed assets, the credit rating agency said.

Credit costs Ind-Ra also expects the operating buffers to be aided by existing provisions, which will keep credit costs subdued in the medium term.

The rating factors in IDFC’s legacy of strong risk management practices and tight loan monitoring systems, which should enable IDFCB to contain credit losses from an incremental book at a comparable level to its peers.

Ind-Ra believes IDFCB’s banking operations will strengthen the existing balance sheet by reducing the asset concentration risk while diversifying its funding profile through accretion of low-cost deposits.

However, the challenge for a successful transition would be its ability to differentiate itself in a competitive business.

Ind-Ra expects IDFCB’s credit costs to be cushioned by its contingency buffers, which could potentially offset the impact from any incremental slippages in the infrastructure sector.

More Like This

Published on September 21, 2015