Shares of IDBI Bank fell 2 per cent on Tuesday after
global ratings firm Standard & Poor's (S&P) downgraded the company's foreign currency issuer credit rating on the back of weak asset quality.
IDBI Bank opened lower and fell 2 per cent to Rs 63.65 on the BSE. On the National Stock Exchange, the stock fell 2 per cent to Rs 63.50.
The foreign currency issuer credit rating on
IDBI Bank was cut to 'BB+/B' from 'BBB-/A-3'. The outlook on the long-term rating is negative,
S&P had said .
'BB+' is considered the highest speculative grade, while 'BBB-' reflects adequate capacity to meet financial commitments, but more subject to adverse economic conditions.
"We downgraded IDBI because we expect the bank's asset quality to remain weak over the next 12-18 months," S&P credit analyst Amit Pandey said.
"...lowered foreign currency issuer credit rating on India-based IDBI Bank to 'BB+/B' from 'BBB-/A-3'. The outlook on the long-term rating is negative," S&P said in a release.
Standard & Poor's Ratings Services bases its rating on IDBI on the bank's 'adequate' business position, 'moderate' capital and earnings, 'moderate risk position, 'average' funding, and 'adequate' liquidity, it said.
S&P further said: "We also lowered the issue ratings on the bank's senior debt to 'BB+' from 'BBB-', subordinated debt to 'BB-' from 'BB+', and junior subordinated debt to 'B' from 'B+'.
At the same time, S&P lowered its long-term ASEAN regional scale rating and Greater China regional scale rating on the bank's outstanding senior debt by one notch to 'axBBB' and 'cnBBB', respectively.
S&P said that it expects IDBI's credit costs to remain high and the non-performing loans in its large infrastructure loan book could rise given the current tough economic conditions in India.
"In our view, this could lead to higher average credit costs. Moreover, IDBI's loan book is fairly concentrated in terms of single-name exposure."
However, the ratings firm said it still see a very high likelihood that the government will provide timely and sufficient extraordinary support if the bank comes under financial distress.
In a separate release, S&P said it has affirmed its 'BBB-' long-term and 'A-3' short-term issuer credit ratings on Indian Bank.
A-3 exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation
"The outlook on the long term rating is negative. We are also affirming the outstanding issue ratings on the India-based bank's debt," it said.
However, the ratings agency lowered Indian Bank's stand-alone credit profile to 'bbb-' from 'bbb' following the revision in assessment of the bank's risk position to 'moderate' from 'adequate'.
"We anticipate that the bank's asset quality will remain under pressure over the next 12-18 months," Pandey said.
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