IDBI Bank Branch In Mumbai (Photograph: Dhiraj Singh/Bloomberg)

Moody’s Upgrades IDBI Bank Ratings After LIC Infuses Capital

International rating agency Moody’s Investors Service, on Wednesday, upgraded the long term rating of IDBI Bank Ltd. after it received fresh capital from its new promoter -- Life Corporation of India Ltd.

The bank’s ‘Baseline Credit Assessment (BCA)‘ has been upgraded to ‘b2 from caa1’, said Moody’s in a release on Wednesday. Despite the three notch jump in rating, IDBI Bank remains in the non-investment grade category.

The outlook on IDBI Bank’s debt obligations has also been raised to ‘positive’ from ‘ratings under review’ earlier. The long term local and foreign currency bank deposit ratings of IDBI was also upgraded to Ba2 from B1.

In a statement, the rating agency said that the upgrade follows the recent infusion of capital from LIC. On January 21, LIC said that it has successfully completed the acquisition of majority equity in IDBI Bank, becoming its new promoter.

The upgrade reflects the improved solvency of the bank following the completion of a significant capital infusion. On 21 January 2019, IDBI received Rs 5030 crore from the allotment of new shares to the Life Insurance Corporation of India. This follows the receipt of Rs 14,500 crore in capital from the previous tranche on 28 December 2018.
Moody’s Investors Service

Also read: And Finally...LIC Gets A Bank

According to Moody’s estimates, the infusion of LIC’s funds will boost IDBI Bank’s core equity tier-1 (CET-1) ratio by 10 percentage points based on the bank's risk weighted assets as of 30 September 2018. The capital infusion will enable to bank to increase provisions for bad loans, which when combined with stabilizing asset quality, will result in lower credit costs and improve profitability in 2020, the rating agency said.

While the bank’s gross non-performing loans (NPL) ratio is the highest of the public sector banks that Moody’s rates, the agency believes that the pace of deterioration in asset quality has moderated.

Going forward, we expect the net NPL formation rate to further improve, and IDBI to lower its stock of NPLs by increasing write-offs.
Moody’s Investors Service

For the quarter ended September 30, 2018, the bank reported a net loss of Rs 3602 crore. IDBI Bank’s gross NPA ratio at the end of the second quarter stood at 31.78 percent, the highest for any public sector bank in India. The bank’s capital adequacy ratio stood at 6.22 percent, lower than the regulatory minimum of 10.875 percent.

However, the bank’s funding and liquidity profile remains robust, with a higher concentration of low cost current account savings account (CASA) deposits, said Moody’s.

IDBI Bank's ratings could be upgraded further if the pace of NPL formation significantly slows from current levels. In addition, IDBI Bank's ratings could be upgraded if the bank returns to net profitability on a sustained basis, Moody’s said.