Rating agency ICRA on Friday downgraded various debt instruments of IDBI Bank owing to a significant erosion of its common equity tier 1 (CET 1) capital, following weak financial performance in the quarter ended December.
ICRA has downgraded ratings for the bank’s ₹8,000 crore infrastructure bonds programme, ₹230.50-crore flexi-bond series and ₹25,742.72-crore senior and lower tier-II bonds programme.
The rating agency also lowered the rating for the bank’s ₹5,000-crore Basel-III compliant tier-II bonds to AA- (hybrid) from AA (hybrid), for the ₹2,500-crore additional tier-I bonds under Basel-III to A (hyb) from A+ (hyb) and for the ₹4,286.20-crore upper tier-II and ₹1,708.80-crore Basel-II compliant perpetual bonds to A+ from AA-.
“The rating downgrade takes into account the substantially weak operating and financial performance of the bank during the third quarter of the financial year 2016-17, which has resulted in a significant erosion of the bank’s capital (CET 1),” ICRA said in a statement.
It expects the bank to be under significant pressure to meet the minimum regulatory level of 6.75 per cent required as on March 31, 2017 as the bank’s CET 1 stood at 7.24 per cent as on December 31, 2016, prior to adjusting the losses in the nine months of the financial year 2016-17.
With limited visibility on capital infusion and continued pressure on profitability, the capital requirements are sizeable and immediate, it said.
“Accordingly, the outlook on the long-term rating continues to be negative and we are closely monitoring the bank’s capitalisation profile and its efforts to raise fresh capital by March 31, 2017, which will be a key rating sensitivity,” the rating agency said.
It said the bank’s rating remains constrained by the continued stress on profitability and asset quality, slower pace of recovery of slipped accounts and the sharper-than-expected deterioration in profitability and asset quality indicators which have impacted the earnings and capitalisation profile of the bank.