BIZ-IDBI BANK-RATINGS

Global rating agency, S&P, Monday affirmed 'BB' long-term and 'B' short-term foreign currency issuer credit ratings on IDBI Bank, while removing them from CreditWatch, after the recent capital infusion from Life Insurance Corporation (LIC). The bank has announced that it received Rs 14,500 crore in fresh capital from LIC on December 28, 2018. This capital infusion is part payment for LIC's proposed acquisition of a 51 per cent controlling stake in the bank.

The total infusion from the transaction is likely to be Rs 17,000 crore-Rs 20,230 crore, greater than the bank's total capital of Rs 13,860 crore as of September 30, 2018. "Such a large capital infusion supports our view of a very high likelihood of support for the bank from the government. The infusion could enable IDBI Bank to accelerate write-offs and make sufficient provisions against stressed assets," the rating agency said in a report. It also removed the ratings from CreditWatch, where they were placed with negative implications on August 17, 2018.

The rating agency, however, believe that derisking of the balance sheet and a substantial clean-up of the bank's large stressed assets may take at least a couple of years. The lender's gross non-performing loans (NPL) ratio was 31.8 per cent as of September 30, 2018, and the bank had insufficient provisioning coverage of 55 per cent against stressed assets. The bank has a high concentration of loans to risky sectors, including infrastructure.

The rating agency also kept the bank's outlook as stable on expectation that the capital infusion from LIC will help it meet regulatory capital requirement on a sustained basis. The report said the bank's rating could be upgraded if it is able to reduce its stressed assets and credit costs to levels comparable to midsize public sector peers and derisk its balance sheet.

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