BUSINESS

Poor credit offtake may affect IDBI Bank: Fitch

By BS Reporter in Mumbai
February 04, 2009 12:35 IST

Rating agency Fitch has downgraded IDBI Bank's individual rating to 'D' from 'C/D' and also its Rs 1,500 crore (Rs 15 billion) Upper Tier-II subordinated bond programme to 'AA-(ind)'  from 'AA(ind)'.

The performance of the Mumbai-based public sector bank may continue to lag behind its peers longer than expected due to the deterioration in its credit cycle, the agency said. Even though the bank's non-performing asset ratios improved significantly after bad loans worth Rs 9,000 crore (Rs 90 billion) were transferred to a trust in FY04, the current economic slowdown could impact the bank's corporate loan portfolio.

Some project loans had to be restructured in the past and could impact asset quality again in the present downturn, Fitch said in its rating review. IDBI's net interest margins have gradually improved, but are likely to remain the lowest amongst domestic banks for the next one to two years due its small base of low-cost deposits.

However, the outlook for the long-term rating is still stable. It affirmed IDBI Bank's long-term foreign currency issuer default rating at 'BBB-' and short-term foreign currency IDR at 'F3.' The likely pressures on asset quality and the somewhat low level of loan loss reserves (39.4 per cent of gross NPAs at end-December 2008) meant that the bank may need to strengthen its capital ratios. Its Tier-I capital adequacy ratio has dipped to 6.9 per cent at the end of December 2008 due to strong loan growth.
BS Reporter in Mumbai
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