MUMBAI: In a setback, Moody’s Investors Services on Thursday downgraded IDBI Bank’s various securities, even as the state-run lender said it was crafting a turnaround strategy.
The downgrade comes days after ICRA and Crisil flagged concerns about IDBI’s weak capital position and high-level of stressed assets, which forced RBI to put the bank under its prompt corrective action (PCA) framework.
“The rating actions reflect the significant deterioration in IDBI’s financial profile, driven by asset quality issues and the heightened risk to its solvency position,” said Moody’s in its rating release. It downgraded senior and subordinated unsecured bonds under the bank’s medium-term note (MTN) programme. It also downgraded IDBI Bank’s local and foreign currency bank deposit ratings, baseline credit assessment and adjusted BCA to caa1 from b1.
“Insolvency refers to asset quality, capital position and profitability, while our financial profile looks at both solvency and liquidity, as represented by its BCA – a measure of the probability of standalone failure. Typically, a bank undergoing a BCA event would carry a BCA of ca, which is three notches below caa1,” said Alka Anbarasu, VP-Financial Institutional Group, Moody’s Investors Service. Moody’s expects asset quality pressures to persist for the next 12-18 months, putting pressure on its profitability and ability to generate internal capital.
IDBI said it was preparing a comprehensive turnaround strategy, to improve its capital position and recover bad loans. “Given the stress in the corporate sector, the bank will restrict growth in the corporate loan book and focus on increasing retail and priority sector asset base. This will help it reduce risk weighted assets and improve CAR (capital adequacy ratio) in the short-term,” Mahesh Kumar Jain, MD & CEO, IDBI Bank said.
He added the bank will raise capital from the market in the medium-term, sell non-core assets, churn corporate loan book to reduce risk weight and seek government support.