Money & Banking

S&P places IDBI Bank on credit watch with negative implications

Our Bureau Mumbai | Updated on August 27, 2019 Published on August 27, 2019

S&P affirms ‘BB’ long-term and ‘B’ short-term foreign currency issuer credit ratings on IDBI Bank. File Photo   -  The Hindu

S&P Global Ratings has placed its ‘BB’ long-term and ‘B’ short-term foreign currency issuer credit ratings on IDBI Bank on credit watch with negative implications. This move reflects the uncertainty regarding the bank’s ability to meet its regulatory capital requirement over the next few months.

Life Insurance Corporation of India (LIC) is the controlling stakeholder in IDBI Bank, following the insurance behemoth buying 51 per cent stake in the lender from the government.

S&P has also placed IDBI Bank’s issue ratings on its senior unsecured debt on credit watch with negative implications.

“IDBI is in breach of its regulatory capital requirements after a substantial loss in the first quarter of fiscal 2020.We believe the breach is temporary and a capital infusion by LIC and the Indian government could help IDBI replenish capital,” the global credit rating agency said in its research update.

The bank expects to raise capital from its majority shareholders — LIC (51 per cent stake) and the government of India (46 per cent) before September 30 to meet the shortfall — but according to the agency, the quantum and timing of the capital infusion are uncertain.

Acording to S&P’s estimates, IDBI will need ₹5,500 crore at the very minimum to plug the regulatory breach and take care of provisioning costs for the next quarter.

The agency observed that a net loss (of ₹3,801 crore) in the first quarter of fiscal 2020 (year ending March 31, 2020) due to high provisioning costs eroded IDBI’s capital to below the regulatory minimum for a banking licence.

“This is the second instance over the past two years that the bank has breached the regulatory minimum, and it was not in line with our expectation,” the agency said.

Excluding the capital conservation buffer (CCB), banks are required to hold a minimum 7 per cent Tier-1 capital ratio and a 9 per cent ratio of total capital to risk-weighted assets (CRAR). IDBI’s Tier-1 capital ratio was 6.14 per cent and CRAR was 8.14 per cent as of June 30, 2019.

Published on August 27, 2019
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